US Macro Updates

Key takeaway: Economic activity in the Services sector expanded in October for the 10th consecutive month. The headline PMI registered 51.8, dropping almost 2 points from 53.6 in September. The sizeable drop made this report a mixed bag for investors. The New Orders Index had recorded a sharp drop from 57.5 to 51.8 in September. It retraced some of the move back with a rise to 55.5. However, most other sub-indexes recorded a negative print. Business activity fell from 58.8 to 54.1, Inventories fell from 54.2 to 49.5. The Inventory Index has seen the sharpest drop in the past 2 months. The Employment Index also fell indicating a slowdown in hiring (although still above 50). Lastly, the supplier delivery index fell further to 47.5 from 50.4 indicating faster deliveries. By now with the improvement in supply chains, faster deliveries can be attributed to a demand slowdown rather than an improvement in supply chains. However, the bottom line remains that, barring a print below 50 in December 2022, the US Services sector has been in expansion (above 50 PMI) for 39 of the past 40 months. In summary, the resilience in the Services sector continues. and the latest ISM print might be slightly weaker, it is still not one that indicates an upcoming recession 

• ISM Services PMI at 51.8 in Oct (53.6 in Sep).

4th Oct 2023

Key takeaway: Economic activity in the Services sector expanded in September for the 9th consecutive month. The headline PMI registered 53.6, a slight drop from previous month’s 54.5. Barring a print below 50 in December 2022, the US Services sector has been in expansion (above 50 PMI) for 39 of the past 40 months. In summary, the resilience in the Services sector continues. While most of the component sub-indexes of the PMI were relatively unchanged or higher for the month, the key point to note was a sharp drop in the New Orders Index from 57.5 to 51.8 (still in expansion territory though). Similarly, Inventories sub- index also fell from 57.7 in August to 54.2 in September. A large portion of the drop in the headline PMI was driven by these 2 sub-indexes. Overall though, this was a fairly robust print and still not one that indicates an upcoming recession 

• ISM Services PMI at 53.6 in Sep (54.5 in Aug).

6th Sep 2023

Key takeaway: For the umpteenth time in the past 12-18 months, ISM Services PMI has once again shown resilience. If you are searching for a recession, pls continue to look elsewhere. The ISM Services PMI increased from 52.7 in July to 54.5 in August. Economic activity in the US in the Services sector expanded for the 8th consecutive month. The sector has grown in 38 of the last 39 months, with the lone contraction in December 2022. The Business Activity Index increased marginally from 57.1% in July to 57.3%. The key New Orders Index expanded a robust 2.5% from 55% in July to 57.5% in August. The Employment sub-index which had registered a fall from 53.1 in June to 50.7 in July, was back up again to 54.7 in August. In summary, services activity continues to be in expansion territory and the PMI numbers looked quite good. In immediate response to the release, the 2 year treasury yield moved sharply higher. The pressure on the Fed remains with a still hot economy! 

• ISM Services PMI at 54.5 in Aug (52.7 in Jul).

3rd Aug 2023

Key takeaway: ISM Services PMI dropped marginally from 53.9 in June to 52.7 in July. Even though the headline PMI dropped, it was still in expansionary territory. US Services PMI has now expanded for 37 of the last 38 months. There wasn’t a substantial change in any of the sub-indexes either. The Business Activity Index, even though 2.1% lower than June, was still healthy at 57.1%. The New Orders Index also did not change much and recorded 55.0%. The Employment sub-index registered a fall from 53.1 in June to 50.7 in July. However, that was on the back of a sharp jump the previous month. In summary, services activity continues to be in expansion territory, but unmistakably slower than the 2022 highs.  

• ISM Services PMI at 52.7 in Jul (53.9 in Jun).

6th Jul 2023

Key takeaway: ISM Services PMI had registered a drop the month before in May to a level just above 50. The question then was whether it was start of a trend of lower in Services PMI, eventually falling into contractionary territory. However, June Services PMI increased once again from 50.3 to 53.9. The Business Activity sub-index registered a large increase from 51.5 to 59.2. Similarly, the New Orders sub-index also registered a large increase from 52.9 to 55.5. And in yet another indication of a strong services sector, the Employment sub-index also registered a sharp jump to 53.1 from a contractionary 49.2 in the month before. Lastly, even New Export Orders Index (which had been relatively soft in the recent past) recorded another strong month growing to 61.5 after 59.0 in May and 60.9 in April. And almost Goldilocks report!  

• ISM Services PMI at 53.9 in Jun (50.3 in May).

5th Jun 2023

Key takeaway: It might be worthwhile to take a step back and rethink the recent Services PMI history. Since the highs of 2021 and early 2022, PMIs for both, manufacturing and services, have fallen substantially. While Manufacturing PMI continued to drift down and firmly into contractionary territory, Services PMI perceivably drew a bottom towards the end of 2022 and have been relatively high for most of 2023. It has been the engine that has held the US economy afloat, together with a resilient final consumer. Apart from a single data point in December 2022, Services PMI has remained in expansionary territory (above 50) all throughout. However, the ISM Services PMI for May recorded a barely expansionary 50.3! The question is – Is this the start of another leg down?? The all important New Orders Index expanded in May again for the 5th time in succession. However the figure of 52.9 is 3.2% lower than last month’s 56.1. On a positive front, supplier deliveries as well as prices came down from the previous month. The last key point to note was that the New Export Orders Index recorded another strong month after April (59.0 in May compared to 60.9 in April). New Export Orders index had generally been weak even in the face of a resilient domestic sector.  

• ISM Services PMI at 50.3 in May (51.9 in Apr).

3rd May 2023

Key takeaway: Where is the recession? If you are looking for one, dont look here! The past 4-5 months of PMI data have indicated strongly that the US manufacturing sector is in contractionary territory. But it is hard to state the same about the US services sector. In fact most of the past 6 months data still suggests an expanding services sector – albeit at a slower pace. The Services sector activity expanded once again in April with headline PMI rising from 51.2 to 51.9. While Services PMIs are undoubtedly lower from the highs of late 2021 and early 2022, it is key to understand that they are still in expansion territory and taking much longer to come down as an effect of the rate hikes than market participants had expected. New Orders expanded in April for the 4th consecutive month – from 52.2 to 56.1. The Prices Index was almost flat compared to previous month at 59.6. However, this number is still quite elevated and hence points to more inflation pressures down the road. The Employment Index, although marginally lower than March, was still in expansion territory at 50.8. The last point to note in this latest ISM release is a whopping 17 points jump in the New Export Orders Index – from 43.7 to 60.9. Most PMIs have been showing a relatively weaker export order index. Hence this one month jump is worth taking note of.  

• ISM Services PMI at 51.9 in Apr (51.2 in Mar).

5th Apr 2023

Key takeaway: The past 4-5 months of PMI data have indicated strongly that the US manufacturing sector is in contractionary territory. But it is hard to state the same about the US services sector. In fact most of the past 6 months data still suggests an expanding services sector – albeit at a slower pace. The first two months of the year had thrown unexpectedly high ISM Services PMI prints. This had resulted in a general move up in treasury yields as the market repriced its view of terminal Fed Funds rate. That was until the banking crisis happened. Many market participants had opined that the January number was likely to be an exception due to seasonal factors. The February number was also just as strong. The latest March Services PMI data indicates a slowdown in the growth of services activity in the US. Most importantly, the new orders index, which had registered a huge growth in the start of the year, moderated by 10.4 percentage points from 62.6% in Feb to 52.2% in Mar. Supplier delivery performance continued to improve. And while Prices Paid sub-index was lower than Feb, it was still substantially high at 59.5 indicating constant upward pressure on prices.  

• ISM Services PMI at 51.2 in Mar (55.1 in Feb).

3rd Mar 2023

Key takeaway: The unexpectedly high January ISM Services print on 3rd Feb 2023 had started the huge move up in treasury yields as the market repriced its view of terminal Fed Funds rate. Many market participants had opined that the January number was likely to be an exception due to seasonal factors. Guess what? The February number is out and it is just as strong. If we exclude the contractionary print of Dec 2022, ISM Services PMI has been in expansionary territory for the past 33 months! The New Orders sub-index further expanded in Feb to 62.6 from 60.4 in Jan. Just to recap – this keenly watched New Orders Index had increased a whopping 15.2 points to 60.4 in January! Supplier delivery performance continued to improve. And while Prices Paid sub-index was lower than Jan, it was still substantially high at 65.6 indicating constant upward pressure on prices.  

• ISM Services PMI at 55.1 in Feb (55.2 in Jan).

3rd Feb 2023

Key takeaway: It is a must to look at the graph in the link below to understand the sharp contrast between the Dec Services PMI and the Jan Services PMI – and to understand why do the wise say “one data point doesn’t make a trend”! January Services PMI recorded a sharp jump back up in expansion territory (55.2 from 49.2 in Dec). To put things in context, barring the low December reading, the Services sector PMI has been above 50 for 31 consecutive months! The Business Activity Index increased 6.9 points from 53.5 in December to 60.4 in January. Most importantly, the keenly watched New Orders Index, increased a whopping 15.2 points to 60.4! The data release flied in the face of economic bears. Even prompting questions from observers whether Powell would have conducted the day earlier FOMC conference any differently if he had seen the PMI data before! The other point to note in this release was that while the Prices Index was marginally down from previous month, it still remains in a high territory.  

• ISM Services PMI at 55.2 in Jan (49.2 in Dec).

6th Jan 2023

Key takeaway: Before analyzing the latest Services PMI its is worth remembering 2 things once again. First – Services is the largest part of the US economy. And second – it has been the ISM Services PMI which has been in stark contrast to other economic indicators over the past 6 months when its readings had been notably positive and expansionary. For the first time in the latest economic downturn, headline ISM Services PMI has printed a below 50 number. Once again, a single print does not suggest we are squarely in a deep recession. Especially because last month’s print had been unexpectedly higher in contrast. But the trend is continuing downward. Similar to Manufacturing PMI, New Orders contracted significantly – dropping from 56 to 45.2! Other sub indexes fell substantially as well indicating a broader downturn. On the other hand, there is still much room for improvement of data in both Prices and Employment indexes to have a positive impact on inflation reduction. 

• ISM Services PMI at 49.6 in Dec (56.5 in Nov).

5th Dec 2022

Key takeaway: Once again, I cannot emphasize enough the importance of the ISM Services PMI number as one of the most important indicators of the health of the US economy. While this all important indicator has been on a softening downtrend since the start of this year, it has held up surprisingly well. Last month the Services PMI had recorded a sharp fall from 56.7 in Sep to 54.4. However, the November Services PMI picked steam back up again to 56.5 beating expectations of 53.3. The Business activity sub-index increased a whopping 9 percentage points from 55.7 to 64.7. The new orders sub index fell from 56.5 to 56.0 – but still in substantial expansion territory. Other sub-indexes of employment, prices, backlogs, etc all suggested decent expansion and growth – which remains concerning from the Fed’s perspective!

• ISM Services PMI at 56.5 in Nov (54.4 in Oct).

3rd Nov 2022

Key takeaway: The ISM Services PMI number is one of the most important indicators of the health of the US economy. For a good 6 months now, the Services PMI has held up exceedingly well leading many to believe in the outcome of a soft landing – a scenario where inflation cools faster than the growth in the economy. That narrative is starting to fade significantly. The ISM Services PMI (at 54.4) recorded the lowest reading since May 2020. Business activity and New orders – both fell substantially from prior month. On the flip side, the weakening of the PMI is not large enough to make the Fed drop gear. To make matters worse in October, supplier deliveries slowed further, inventories fell and prices increased – none of which augur well for the inflation picture

• ISM Services PMI at 54.4 in Oct (56.7 in Sep).

5th Oct 2022

Key takeaway: If I were to choose one economic indicator which still makes me believe a bit in the soft landing scenario, it is still the ISM Services number. Economic activity continues at a decent pace still in the US Services sector. The latest Manufacturing PMI rolled over a bit, but Services continues to grow strong! Economic activity expanded for the 28th month in a row. Most of the sub-indexes, including new orders, were lower than August, but they are still well into expansion territory (above 50). At the same time, price pressures continue to abate in these indexes which will eventually find their way into CPI. Inventories are still low since demand continues to outstrip supply. Unfortunately though, for all the good news, it only makes the Fed more jittery and probably skews their decision making to the tighter end.  

• ISM Services PMI at 56.7 in Sep (56.9 in Aug).

6th Sep 2022

Key takeaway: The dichotomy with the ISM Services PMI and almost every other data point continues in August as well. Just like last month, this was a robust number. Economic activity in the Services sector grew in August for the 27th month in a row registering a solid 56.9%. New orders index increased further to 61.8%. Employment grew, supplier deliveries eased a bit and prices continued to fall. The last ISM Services release had added to existing tailwinds in the equity markets strengthening the belief of a softish landing. This reading further reinforces that belief.  Ironically, this month’s ISM Services release coincided with the updated PMI release by S&P Global, which continues to show significant divergence from the ISM PMI. In fact, the S&P Global Services PMI showed a sharp slowdown in August, especially in new orders! 

• ISM Services PMI at 56.9 in August (56.7 in July).

3rd Aug 2022

Key takeaway: ISM Services PMI came in better than expected. There were anyways some positive vibes in the equity markets on the back of a perceived dovish Fed July meeting and a better-than-expected ISM number contributed some more! Remember – Services is a larger portion of the US economy. In general, US GDP numbers track Services PMI quite well. The major point in this release was the new orders index increased substantially. Supply chain contraints eased seen from the easing of the supplier deliveries index and input prices further came off as well. Now, there are some variances from the S&P Global PMI. But it is not uncommon to have some differing data between the two PMI sources. 

• ISM Services PMI at 56.7 in July (55.3 in May).

6th Jul 2022

Key takeaway: A bit of good news! While Manufacturing PMI (both ISM and S&P Global) have been relatively downbeat in recent months (especially contracting new orders), the ISM Services PMI held up quite well. Firstly, the index at 55.3 outperformed consensus estimate of 54.3. Secondly, remember that a reading above 50 is still expansionary. Also, New Orders index was a good 55.6 – lower than May, but still expansionary. Now why is all this good news? JI probably would not have been standalone. But there was a sequence of relatively good news in the past week. Factory orders were up 1.6% in May (compared to +0.6% in April). The revision to new orders for manufactured durable goods also improved from 0.7% to 0.8% for May. And finally, oil has substantially fallen. 

• ISM Services PMI at 55.3 in June (55.9 in May).