Services in the US

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The ISM services index for November fell to 57.4 from 60.1 and that was 1.6 pts below the estimate. It is also a 3 month low and comes off the best level since 2005 last month. New orders fell about 4 pts to 58.7 while backlogs were down by 2 pts to 51.5, the lowest since January. Employment weakened by 2.2 pts to 55.3, a 4 month low. Export orders (only a few service companies report them) fell 3 pts after rising by 4 in October. Prices paid fell 2 pts to 60.7 but that is still about the 6 month average of 59.2 and 15 of 18 industries reported paying higher prices vs 13 in October.

Notwithstanding the headline drop m/o/m, 16 of 18 industries surveyed saw growth, the same pace as in October. That said just 12 of 18 industries saw new order growth, 7 saw backlog growth and only 11 reported employment growth and 5 saw firing’s.

The ISM said “The rate of growth has lessened in the non-manufacturing sector after two very strong months of growth. Comments from the survey respondents indicate that the economy and sector will continue to grow for the remainder of the year.”

Bottom line, the post hurricane boost in activity fell back to the average seen in this index year to date. What will be most interesting is how these confidence numbers respond to the final tax bill. Until then, some of this confidence news should be considered old news. And again, these confidence numbers only reflect the direction of activity, not the degree.

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Markit said its US services index fell .8 pts m/o/m to a 5 month low but they consider this level of activity still strong “by recent standards.” This is what they said on inflation: “Average prices charged for services increased further in November, with the rate of inflation accelerating. Panelists stated the rise was due to higher input costs which were passed on to clients. Cost burdens faced by service providers rose at a strong rate that was slightly below the sales trend. Panel members noted that the increase in input costs was primarily due to higher goods prices.”

I would have thought that optimism about tax reform would be boosting confidence heading into 2018 and maybe it is that isn’t reflected yet but Markit’s economist said “Disappointingly, optimism about the year ahead deteriorated as companies grew increasingly cautious about the outlook for 2018, suggesting risk aversion may start to rise…However for now, businesses generally remain in expansion mode and the upturn shows few signs of losing momentum to any significant extent.”

Bottom line, and outside of what I said on ISM, cyclical inflation is percolating in many places globally.