After a very strong ‘hard’ data report earlier in the day from ADP, today’s ‘soft’ data point came in weaker than expected in the form of the ISM Services report. While economists were forecasting the headline reading to come in at a level of 57.0 versus last month’s reading of 57.6, the actual reading came in at 55.2, which was the lowest reading since October. On a combined basis, the ISM report for March declined to 55.4 from 57.6, marking the first m/m decline since October.
In terms of the Services PMI internals, March was a weaker month relative to February. Of the report’s ten sub-components, six declined and four increased. The biggest increases this month were in Export and Import Orders, while the largest decline came from Business Activity, Prices, and Employment. On a y/y basis, breadth was much stronger with eight components increasing and just two (Inventories and Business Activity) declining.
Some of the more interesting charts from this month’s reports came from the Business Activity, Employment, and Export Orders components. First, after looking as though it had broken its downtrend following last month’s strong showing, Business Activity fell back below that trendline this month. At a level of 58.9, though, it is still indicative of solid growth.
With the March employment report coming on Friday, the Employment component of the ISM Services report is always worth watching. This month, that component saw its largest drop since October and at 51.6 is showing only modest growth. It’s hard to reconcile this relatively weak level with the strong ADP report earlier in the day, but there can always be noise from month to month.
With respect to Export Orders, the weaker dollar is really benefiting multi-nationals. As shown in the chart below, this component now sits at its highest level since May 2007 after putting in its largest two-month increase since that same month.