US services sector activity was healthy in September, according to top-tier data released on Wednesday.
At this point, “resilient” is synonymous with “stubborn,” or at least in the minds of market participants anxious for evidence to support a policy pivot narrative that helped “inform” the largest two-day surge for US stocks in years.
ISM services printed 56.7 for September (figure below), ahead of estimates and near the high-end of the range. Five-dozen economists offered guesses ranging from 52.5 to 57.5.
Meanwhile, the final read on S&P Global’s services gauge for September was basically unchanged from the flash print. So, still in contraction territory at 49.3, but up from August’s abysmal reading. The disparity between the two indexes narrowed.
Under the hood, ISM new orders and business activity both receded slightly, but at 60.6 and 59.1, they’re still elevated. The employment gauge moved up substantially, rising to 53 from the brink of contraction last month. It was the best reading since March and contrasted with a poor read on factory employment from ISM manufacturing earlier this week. I’d note that September’s ADP report showed the goods-producing sector shedding workers last month against reasonably robust gains in services.
“The services sector had a slight pullback in growth for the month of September due to decreases in business activity and new orders,” ISM’s Anthony Nieves said Wednesday, adding that “employment improved and supplier deliveries slowed at a slightly slower rate.” Respondents observed better supply chain efficiency, operating capacity and materials availability but firms said performance “remains less than ideal.” The improvement in employment came “despite the restricted labor market.”
The prices paid gauge continued to recede, falling to 68.7, the lowest since January of 2021. That’s consistent with a steep drop in the factory prices index.
I’d note that some of the ISM anecdotes were less than rosy. Someone in Accommodation & Food Services described a “more severe” deceleration in sales than the seasonal trend would dictate. A panelist in Construction said “sales have slowed significantly [in a] very challenging market,” while a respondent in retail flatly noted that the “chip shortage shows no signs of abating.” Other anecdotes were more constructive.
Meanwhile, S&P Global’s Chris Williamson said Wednesday that “a cooling of inflationary pressures in manufacturing supply chains… is alleviating cost growth for goods and energy in both manufacturing and service sectors, helping stimulate demand and allaying some concerns about the economic outlook.”
That said, Williamson highlighted a familiar risk. “The worry is that tightening financial conditions, and notably higher borrowing costs, are exerting increased cost pressures on households and businesses,” he cautioned, adding that although price pressures are abating, “persistent inflation remains a concern at the same time that the economy appears to be struggling to regain momentum.”
There’s a word for that sort of conjuncture.
