Boockvar on U.S. Service Sector
The following is from Peter Boockvar:
The US service sector
The July ISM services index was little changed at 54.1 vs 54 in June and just below the estimate of 54.5. The business activity component though gained another 3.7 pts to 59.1.
Of note after the ADP report and ahead of Friday payrolls, the employment component fell back below 50 at 47.4 from 51.2.
New orders lifted to 57.2 vs 55.1 but just back to its 6 month average of 57.1. ISM said comments from respondents include: “Beginning of new fiscal year — budgets in place and various large dollar projects (renovations) to complete this summer before the fall semester begins” and “World Cup.” Backlogs dropped 4 pts to 50.9 and below its 6 month average of 53.3. Inventories were little changed at 51.4 and 3.5 pts below its 6 month average as maybe the post conflict lift is slowing down.
Supplier deliveries calmed, down 1.6 pts (lower number means improved supply chain) but not all smooth. From ISM, they said comments from respondents include: “Some smaller suppliers are starting to be stressed financially, causing delays in shipments, missed shipments and other issues; we are spending more time monitoring and managing these small but important suppliers to our business” and “Lead times are doubling on specific electrical conductor.”
Prices paid got back above 70 at 70.3, up 2.6 pts m/o/m with 17 of 18 industries paying more and one seeing no change. No one paid less.
Export orders grew 1.6 pts to 52 and above 50 for the 6th straight month.
Breadth was a hair weaker with 13 industries seeing growth vs 14 in June while 4 reported a contraction, the same figure in June.
The bottom line from the ISM, “Tariff impacts and the Middle East conflict continued to be mentioned by respondents, but much less frequently than in prior reports. The World Cup was again cited in the comments regarding increased business activity and new orders. Overall, the U.S. services economy continues to be resilient. Concerns still exist regarding mortgage and inflation rates, and we are still in the midst of pricing impacts due to the recent run-up in petroleum costs.”
And, the current level of the ISM services figure “corresponds to a 1.9% increase in real GDP on an annualized basis” according to their model and which is about the pace of US GDP growth seen over the past 6 quarter on average.
Bottom line, the US services sector continues to be a consistent area of economic activity, particularly helped by upper income spend on the retail side along with leisure and hospitality and healthcare which is only growing in size. Construction too of course if you’re building a data center but less so if you’re building homes.
ISM Services
New Orders
Prices Paid
Employment
Positions: None
