PMI/ISM Non-Manufacturing Indicate Strong Jobs and Higher Prices

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The economic reports on Monday were far less important compared to the jobs and wages data released by the U.S. Department of Labor, but we are getting a sense of January’s U.S. services and non-manufacturing economy. IHS Market released its services sector reading, and the Institute for Supply Management (ISM) released its non-manufacturing reading. It should also be considered that these are the non-manufacturing readings because the United States is a services and non-manufacturing economy.

The PMI Services Index for January, released by IHS Markit, was shown as a final Services Business Activity Index of 53.3 on a seasonally adjusted basis in January. The consensus estimate from Bloomberg was 53.3, and the report was lower than the 53.7 reading in December. The data were collected from January 12 to January 26.

IHS Markit noted that the upturn in output softened but remains in solid territory despite being the slowest growth since April of 2017. New business actually expanded at the fastest pace since September of 2017, and order backlogs increased at the strongest rate since March 2015.

IHS Markit also identified some jobs and price pressure. Their view is that job creation remained solid as firms increase their workforce numbers in response to greater activity requirements. January also indicated a further rise in input costs faced by service providers to the fastest since last September. IHS signaled that a number of survey respondents linked the latest increase to higher raw material costs, especially fuel costs, and the average prices charged also increased further in January and the pace of inflation quickened. The final seasonally adjusted IHS Markit U.S. Composite PMI Output Index fell to 53.8 in January, after having been at 54.1 in December.

ISM Non-Manufacturing was 59.9 for January. The December reading was 55.9, and the Bloomberg consensus estimate was 56.2. The Non-Manufacturing Business Activity Index rose two points to 59.8%, reflecting growth for the 102nd consecutive month. The New Orders Index jumped by 8.2 points to 62.7%.

There were gains in jobs and employment in the ISM report as well. The Employment Index jumped 5.3 points in January to 61.6%. The Prices Index increased by two points to 61.9% in January, indicating that prices increased in January for the 23rd consecutive month.

According to the ISM report, 15 non-manufacturing industries reported growth in January after two consecutive months of pullback. Three industries reported contraction in January: Information; Other Services; and Professional, Scientific & Technical Services. The majority of respondents’ comments were positive about business conditions and the economy, and they also indicated that recent tax changes are bringing a positive impact on their businesses.

Prior to the mixed reports here, both reports already had been cooling off lately on the headline data. While the reports were mixed and in different directions, both readings remained handily above the breakeven line of 50 to indicate that growth was still there.