ISM Services smashes upside estimates, S&P Services is deeply negative – Mish Talk
Unexpected increase in services
For June the ISM® The services index was 55.3. Bloomberg Econoday economists expected the index to fall to 53.0.
Econoday published “The ISM services index slowed and is expected to slow significantly in July, to a consensus of 53.0 from 55.3 in June.”
July 2022 ISM Services® Business report®
Please consider July 2022 Services ISM® Business report®
The report was released today by Anthony Nieves, CPSM, CPM, APP, CFPM, President of the Institute for Supply Management®.
In July, PMI Services® recorded 56.7%, an increase of 1.4 percentage points from the June reading of 55.3%. The 12-month average is 60.2%, reflecting continued strong growth in the services sector, which has expanded for 26 consecutive months. A reading above 50% indicates that the service sector economy is generally expanding; below 50% indicates that the service sector is generally contracting.
A PMI Services® above 50.1%, over time, generally indicates an expansion of the overall economy. As a result, the July services PMI® indicates that the overall economy has followed the same path as the service sector: expansion for 26 consecutive months after two months of contraction and a previous period of 122 months of growth. Nieves says, “The past relationship between PMI Services® and the overall economy indicates that the services PMI® for July (56.7%) corresponds to a 2.4% increase in real gross domestic product (GDP) on an annualized basis.
ISM mixed bag® Respondents (emphasis mine)
- “Restaurant sales have slowed in recent weeks (due to) post-holiday and seasonality factors, but we also hear due to consumer pressures, particularly fuel and food prices. Staffing remains a challenge in some markets. Many of our locations in (Los Angeles County) have learned that there may be a return to (indoor) mask mandates. [Accommodation & Food Services]
- “Interest rates have had a significant impact on the residential construction market. Cancellation rates have increased as homebuyers can no longer afford the monthly payment. Traffic to our communities is down. Inflation has driven out many potential buyers. [Construction]
- “Strengthening of the market as a whole and signs of improvement. Rising prices putting a strain on fixed budgets. We have gone from reducing costs to guaranteeing continuity of supply. Higher education is expanding, with an increase in the number of applicants. [Educational Services]
- “Activity continues to remain below pre-pandemic levels. Census and (patient) visits have increased but appear to have plateaued over the past six months. [Health Care & Social Assistance]
- “Can feel the economy weakening. Clients take appropriate action in anticipation of a recession. [Management of Companies & Support Services]
- “Hiring demand remains robust in most industrial sectors. Technology has seen a slowdown in hiring and layoffs. It is still a candidate market, as the number of job openings at all skill levels and positions remains far greater than the number of applicants for those positions. » [Professional, Scientific & Technical Services]
- “Raising costs across the board seems to be the top priority now. Fuel and food are the most common objective, but this is widespread, and there is pressure in the labor market for skilled workers to increase wages and other benefits. [Public Administration]
- “(We are) in inventory reduction mode, trying to match inventory levels to current declining sales trends.” [Retail Trade]
- “Stay steady, but some headwinds are definitely ahead on the economic front. However, the supply chain issues seem to be easing, but not very well yet. » [Utilities]
- “Restoration remains strong. Retail trade softens because the masses are too preoccupied with stocks and consumer spending. [Wholesale Trade]
ISM® comments from respondents do not match the strength of the overall numbers.
There were only a few out of ten positive reviews. I underlined the negative. Only point three was unilaterally positive. Point six was mostly positive and point 10 was mixed.
S&P Global US Services PMI™
This is very confusing because the S&P and the ISM® use the term PMI.
With this in mind, please consider the S&P Global US Services PMI™
Main conclusions
- Commercial activity fell for the first time in more than two years in a context of weak demand.
- Fastest fall in production since May 2020
- Cost pressures easing further
- Business confidence at near two-year low
Business activity in the services sector in the United States declined at a healthy pace in July, according to the latest PMI™ data. The fall in production was the fastest since May 2020. Although new orders have returned to growth, the rate of expansion has historically been subdued and much slower than those seen earlier in the year. Subsequently, service providers registered lower expectations for the production outlook as confidence fell to a 22-month low. Nevertheless, companies have been increasing their workforces at a steady pace, with sufficient capacity for companies to manage backlogs effectively.
Inflationary pressures remained historically high in July, but eased further. Input costs and production costs increased at the slowest rates for five and 16 months, respectively.
The final seasonally adjusted S&P Global US Services PMI index of business activity recorded 47.3 in July, up slightly from the previously published “flash” estimate of 47.0, but down from 52, 7 in June. The latest headline reading signaled the seasonally adjusted index’s fourth consecutive decline, marking a notable contrast to the strong expansions earlier in the year. The drop in activity is the first since June 2020 and overall solid. When companies reported a contraction in production, it was linked to relatively weak demand, deteriorating financial conditions and higher prices.
Chris Williamson, Chief Economist at S&P Global Market Intelligence
“Economic conditions in the United States deteriorated markedly in July, with business activity falling in both the manufacturing and service sectors. the overall decline in output was the largest since the global financial crisis and signals a strong likelihood that the economy will contract for a third straight quarter.”
S&P Global US Composite PMI™
The S&P also reports private sector production contracts at the fastest pace in more than two years.
The S&P Global US Composite PMI Output Index posted 47.7 in July, down from 52.3 in June, signaling a further contraction in private sector business activity. The drop in production was the first since June 2020 and was widespread.
Composite is a mix of manufacturing and services.
Venus versus Mars
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One of these reports appears to be a survey done on Mars. The other seems to come from Venus.
Both are diffusion indices. This means that direction is more important than magnitude.
For example, a company that hires 2 people and a second one that fires 2,000 comes back to zero.
If one survey is more focused on restoration and the other on construction, this will also change the composition of the responses.
We have already seen these discrepancies. I expect a downward resolution.
Hello recession deniers, it’s already time to reflect on a third quarter of negative GDP
On August 1, I commented Hello recession deniers, it’s already time to reflect on a third quarter of negative GDP
I think Chris Williamson is right about the “high likelihood that the economy will contract for a third consecutive quarter”.
Look forward
A large part of GDP changes very little throughout the quarter (military spending, health insurance, social security, food stamps, etc.)
It is the cyclicals (durables and housing) that tend to drive booms and busts.
July could see an improvement in energy-based inflation. But the rent (more than 31% of the CPI) continues to rise. Consumer confidence is poor and inflation-adjusted retail sales are not good for the quarter as a whole.
Cyclical discussion
Housing will be another big bust this quarter. And the rate of durable goods will follow housing. Crafting rates will be negative.
Hopes for the quarter rest solely on consumer spending and lower inflation. But don’t count on strong retail sales.
Add it all up and you have a third quarter of negative GDP.
This post is from MishTalk.Com.
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