We all know that the US manufacturing sector has been pretty sick over the last few months, but for most of this time the services sector, which is a much larger share of the economy, has been holding up relatively well. The big question facing the economy was whether or not the ills of the manufacturing sector would infect the services sector or remain contained. Today’s ISM report on the Non-Manufacturing sector showed that while the services sector is still relatively healthy and nowhere near as sick as the manufacturing sector, it has the sniffles. While economists were expecting the headline reading to come in at a level of 55.1, the actual reading was quite a bit weaker at 53.5. Make no mistake, this is still in expansion territory, but it is the lowest level in nearly two years (February 2014). Taking this morning’s report and Monday’s report on the Manufacturing sector, the combined ISM fell to 52.9 from 54.4. That’s also the lowest level since February 2014.
The table below breaks down this month’s report by each of its sub-components showing current levels relative to last month and last year. As shown, breadth was very weak. Of the ten components, eight declined with Export Orders, Business Activity, and Prices seeing the largest drops. Below the table, we have also included a chart of Business Activity, which absolutely fell off a cliff this month, falling 5.6 points to 53.9 – a level not seen since August 2012. Another component to take note of is Employment which fell 4.1 points to 52.1. That doesn’t inspire a lot of confidence heading into Friday’s NFP report, but we would note that it is still comfortably above 50.