ISM Services

The January ISM services index was a touch above expectations at 55.5 vs the estimate of 55.1 and up from 54.9 in December. The internals though were mixed. New orders rose .9 pts to 56.2 but backlogs fell by 2 pts to 45.5 and that is the weakest since July 2012. Employment moderated by 1.7 pts to 53.1 and that is the lowest since September. Of note, only 6 of 18 industries surveyed said they increased payrolls, down from 10 in December and 13 in November. Inventories fell back below 50 at 46.5 and that matches the least since 2011 and gives hope that maybe we’ll see some inventory building at some point. Export orders fell .9 pts to just above 50 at 50.1. Prices paid softened by 3.8 pts to 55.5, the lowest since February 2019.

In terms of breadth, of the 18 industries surveyed 12 saw growth vs 11 in December and 12 in November. Six saw a contraction, the same number seen in December.

Bottom line, for further perspective, the 55.5 print which is the same as the 2019 average compares with the 2018 average of 59. According to Markit’s services PMI which came in at 53.4, they equate this to about 2% GDP growth which we seem to be experiencing. I did see a comment from a business in medical care which mentioned the corona virus and the “potential impact on medical supplies like surgical masks and protective goggles” but assume most businesses replied to this survey before any notable effect, if any for some, was felt. Lastly, keep note ahead of the BLS report on Friday on the heels of the big upside in ADP that the Employment component was subdued in this report as stated, along with only 6 industries reporting job growth, the lowest since October 2016, right before the election.

ISM SERVICES

BACKLOGS

EMPLOYMENT