The February ISM services index unexpectedly rose to 57.3 from 55.5. The estimate was for a decline of 54.8. The internals were strange. Business activity fell by 3.1 pts but new orders jumped by 6.9 pts to 63.1 while backlogs spiked by 7.7 pts to 53.2. We also saw a jump in inventories. Employment was higher by 2.5 pts to the highest since July. Export orders jumped by 5.5 pts. Supplier deliveries, a measure of supply constraints, was only up by .7 pts. Prices paid fell by 4.7 pts to just above 50 at 50.8.
Of the 18 industries surveyed, 16 saw growth vs 12 in January.
ISM said “The non manufacturing sector reflected continued growth in February. Most respondents are concerned about the coronavirus and its supply chain impact. They also continue to have difficulty with labor resources. They do remain positive about business conditions and the overall economy.”
While this performance in light of the challenges the US economy faces is impressive, the Markit measure of the US services sector has the exact opposite of the situation in US services. Their February index fell to 49.4 from 53.4.
Markit said “February data signaled the first contraction of US service sector business activity for four years. The decrease in output stemmed from only a fractional rise in client demand and a further contraction in new business from abroad as customers held back from placing orders amid global economic uncertainty and the coronavirus outbreak.” In terms of hiring, “service providers expanded their workforce numbers at the slowest rate for 3 months.”
Further, “Business sectors such as travel and tourism are reporting weakened activity due to the virus outbreak, most notably in terms of foreign visitors and overseas sales. However, other sectors such as financial services and business services are reporting virus related hits to demand, suggesting a more broad based weakening of demand across the economy, exacerbating the supply shock that is constraining manufacturing.”
Bottom line, the US Treasury market is going with the Markit figure here and considering the ISM old news as the 10 yr is below 1% at .97%.
ISM in orange/Markit in white go their separate ways in February