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ISM services in May

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United States

The May ISM services index fell to 56.9 from 57.5 and that was a hair below the estimate of 57.1. This level is about in line with the average year to date of 56.7 and remains above the 2016 average of 54.9. The internals were mixed as new orders fell 5.5 to 57.7, the lowest level since November. Backlogs rose 3.5 pts to 57 which is the highest since August 2007. Employment was higher by 6.4 pts to 57.8, the most since July 2015 days after seeing a good ADP number and a weak BLS one. Export orders fell 11 pts to the weakest since January with not all service companies having exports. On the pricing front, things eased to back below 50 at 49.2 vs 57.6 in April and that is the lowest since February 2016.

Notwithstanding the headline m/o/m drop, 17 industries of 18 surveyed saw growth vs 16 in April. The ISM summed up the report by saying “Although the non manufacturing sector’s growth rate dipped in May, the sector continues to reflect strength, buoyed by the strong rate of growth in the Employment index. The majority of respondents’ comments continue to indicate optimism about business conditions and the overall economy.”

Markit also released its measure of US services and it was up .5 pt to 53.6 from 53.1. They described the message from its PMI by saying “the economy is enjoying steady, albeit unspectacular growth, and that the pace of expansion has been slowly lifting higher in recent months. Hiring meanwhile remains on firm footing, with the survey’s employment indicators running at levels consistent with around 160,000 jobs added to the economy in May.” Not far from what the BLS said. In contrast to ISM on pricing, Markit said “average prices charged for goods and services is running at the 2nd highest in almost two years, indicating that rising demand is helping to restore some pricing power.”

Bottom line, I think Markit said it well in that the data in the services area reflect an economy growing at a steady but unspectacular 2% range. We will get a rate hike next week from the Fed and a likely one in September and we’ll see what they do about the balance sheet in December as that remains a ways off.