If whatever subjective odds you assign to a decisive dovish lean from the Fed next week are going up, you’re probably not alone.
Shortly after the worst ADP print since May landed, ISM non-manufacturing missed, printing 53.9 for November, down from 54.7 in October and below the 54.5 consensus was expecting.
The range was 53.5 to 55.5 from 61 economists.
Business activity dove to 51.6 from 57 – that looks like the lowest since January 2010.
New orders rose, as did employment and new export orders. Imports fell to 45, from 48.5, the lowest in more than seven years.
This of course comes on the heels of a bitterly disappointing ISM manufacturing report on Monday, when the market learned that contrary to what the Markit PMI is saying, the factory sector remains in a slump.
For what it’s worth, the final read on Markit’s non-manufacturing gauge for November is 51.6, unchanged from the flash print, and the highest since July.
The worry has always been – and will continue to be – that the manufacturing downturn will spill over into the all-important services sector. Eventually, that would show up in the jobs market. After that, it’s curtains, so to speak.
While November’s ISM services read is not inspiring, it’s not a complete debacle either, and may actually stoke risk appetite to the extent it argues for more dovishness from the Fed at the margins.
In the near-term, though, the domestic macro narrative will live and die by the November jobs report and the evolution of the trade discussion. We’ll have clarity on the former by the weekend. As for the latter, well, stay tuned to Twitter, we suppose.
More details from the ISM non-manufacturing report
WHAT RESPONDENTS ARE SAYING
- “Generally sluggish demand in the past month; back to summertime levels.” (Agriculture, Forestry, Fishing & Hunting)
- “Activity is still up in all areas, but primarily in commercial construction.” (Construction)
- “No significant changes in business conditions. Closing out current projects and initiatives. Preparing for year-end and the beginning of 2020.” (Finance & Insurance)
- “Lower reimbursement rates will continue to affect funding levels.” (Health Care & Social Assistance)
- “Tariffs are impacting prices for a broad array of products used in the delivery of services and completion of projects for our clients. Upward pressure is impacting suppliers and their pricing to customers. We are seeing no relief from our customers, so we’re being negatively impacted by tariff-driven price increases. Numerous suppliers report looking for alternative manufacturing/supply locations outside of China, but with limited or no success so far.” (Management of Companies & Support Services)
- “Tariffs on steel and aluminum are still having a negative impact on costs. Oil and gas business is increasing, which is favorably impacting our orders.” (Other Services)
- “We’re optimistic [because the] economy appears to be on autopilot, despite all the political distractions. Stock market seems invincible, [and the] trade war with China appears to be in a stalemate. Job growth appears to be reaching an equilibrium point. Final economic demand appears strong, with positive spend forecast for the holidays.” (Professional, Scientific & Technical Services)
- “Business activity is lower after the end of the 2019 fiscal year. The federal government is under a continuing resolution appropriations bill. This means we have not received a full annual budget, and all spending is restricted to past operational budgets for only necessary items.” (Public Administration)
- “Fourth-quarter seasonal retail volume increase is affecting labor hours, temporary labor demand and availability of short-term rental trailers to compensate for overflow.” (Transportation & Warehousing)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS
|Index||Series Index Nov||Series Index Oct||Percent Point Change||Direction||Rate of Change||Trend** (Months)||Series Index Nov||Series Index Oct||Percent Point Change|
|Business Activity/ Production||51.6||57.0||-5.4||Growing||Slower||124||49.1||46.2||+2.9|
|Backlog of Orders||48.5||48.5||0.0||Contracting||Same||2||43.0||44.1||-1.1|
|New Export Orders||52.0||50.0||+2.0||Growing||From Unchanged||1||47.9||50.4||-2.5|
|Inventory Sentiment||58.5||57.0||+1.5||Too High||Faster||269||N/A||N/A||N/A|