United States
The June ISM services index rose .5 pt to 57.4 and that was a touch above the estimate of 56.5 and vs 57.5 in April. After falling by 5.5 pts in May, new orders rebounded by 2.8 pts to 60.5 and puts it in line with the 6 month average of 60.0. Backlogs fell 4.5 pts to 52.5 but after rising by 3.5 pts in May. Employment weakened by 2 pts to 55.8 but it rose by 6.4 pts in May. Export orders (only some service companies report them) were up by .5 pt. Prices paid did rise by almost 3 pts to 52.1 but only after dropping by 8.4 pts in May.
Notwithstanding the m/o/m improvement in the headline print, 16 industries of 18 surveyed saw growth vs 17 in May. Also, within the Business Activity category 14 saw growth vs 16 in May as this component rose .1 pt m/o/m to 60.8 but is slightly below the 6 month average of 61.1. The ISM bottomed lined the report by simply saying “The majority of respondents’ comments are positive about business conditions and the overall economy.” There were a few comments complaining about the labor situation. Well known is the problem in construction and the quote here was “Labor continues to be constrained in the construction industry, driving cost increases.” A quote from a business in the ‘Professional, Scientific and Technical Services sector’ said “General overall optimism in economy. Still job growth issues with mismatch in available labor pool and jobs available.”
Bottom line, this key area of the economy continues to hang in pretty well in terms of confidence. In terms of actual economic activity, we are still most likely going to have a 1 handle on growth in 2017 after a 1.6% performance in 2016.
Unlike in the differential seen in the ISM measure of manufacturing and with Markit’s measure, both were on the same page with services. Markit’s index rose 1.2 pts in June which was the best since January. “Panelists linked growth to increased new orders and strong client demand.” Employment was the best since February. With respect to inflation, “input prices increased at a solid rate that was the quickest in 2 years. Many respondents linked input price inflation to higher raw material and staffing costs.” The underline is mine. “Average prices charged…rose for the 16th consecutive month in June…Panelists linked the latest increase in prices to greater cost burdens and stronger demand.” This is why whether it will be QT or another rate hike, monetary policy is going to tighten again in September.
The 10 yr yield is little changed in response but still at its high of the morning at 2.37-.38%. European yields are a hair off their intraday highs.
ISM SERVICES IN ORANGE, MARKIT’s SERVICES PMI IN WHITE
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.