It’s hard to describe a weaker than expected economic indicator as being OK, but that was pretty much the case with the ISM Services report for the month of December. While economists were forecasting the headline reading to come in at 58.5, the actual reading came in at 57.6 versus a reading of 60.7 in November. While that 3.1 point decline sounds large, there was actually a move of a similar magnitude as recently as last July. On a combined basis, though, the ISM for December saw a larger decline, falling from 60.5 down to 57.2. On that basis, the 3.3 point decline was a bit more significant as it was the largest m/m decline since November 2008.
Like its manufacturing counterpart, breadth in this morning’s ISM Services report was also pretty poor as the only two components that saw any improvement on a m/m basis were New Orders and Export Orders. The largest decliners were Prices (-6.7), Inventories (6.0), and Business Activity (-5.3). On a year/year basis, breadth wasn’t nearly as bad, though, as more subcomponents showed y/y increases versus y/y declines.
Finally, while both the ISM Manufacturing and Non-Manufacturing reports showed large m/m declines this month, the commentary section of the Non-Manufacturing report was a lot less dour than its Manufacturing counterpart. In the graphic below, we have highlighted both positive and negative comments regarding business activity from this month’s commentary section. While there were a couple of statements suggesting slower business conditions, based on the sample provided in the report, there’s still more optimism than pessimism. Given that the US economy is much more skewed towards the Non-Manufacturing sector than Manufacturing, that’s a positive trend!