ISM services rise in February

The February ISM services index rose 1.1 pts to 57.6 where unchanged was expected. It’s at the best level since October 2015. New orders improved by 2.6 pts to 61.2, also the best since 2015. Backlogs rose 4 pts off the 50 level. Employment was up a .5 pt to 55.2 which is where it was in November in the initial reaction after the election. Export orders jumped by 9 pts but only a few of the 18 industries surveyed even report exports. Off the highest level since April 2014, prices paid fell by 1.3 pts. Also, as seen in the manufacturing report a few days ago, the breadth of the improvement was evident as 16 of the 18 industries surveyed saw growth vs 12 last month. The two seeing contractions was real estate/rental, leasing (higher rates, less access to capital in CRE, tighter lending standards, lack of inventory?); and information.

Bottom line, the ISM was positive but threw in a caveat. They said “The non manufacturing sector reflected strong growth in February after cooling off in January. Respondents’ comments continue to be mixed, with some uncertainty; however, the majority indicate a positive outlook on business conditions and the overall economy.” Digging within the key new orders component, 13 industries saw growth vs 10 last month, so not as broad as seen with the headline figure. Employment gains were seen in 11 of 18 industries vs 7 last month.

As stated and seen, the sentiment numbers for both business and the consumer have been great post election. Transmitting that into actual growth is the thing we now need. It doesn’t look like it will happen in Q1 but let’s hope for Q2. That said, much will depend on what form tax reform takes as there will inevitably be winners and losers in any tax changes.