It was only fitting that the last of this week’s deluge of top-tier US macro updates counted as a miss.
The balance of the data received in recent days was unequivocally dovish, including the October jobs report, which missed estimates and included meaningful downward revisions to the prior months’ headline prints.
With that as the backdrop, Friday’s cooler-than-expected ISM services print fit right in. 51.8 compared unfavorably (or favorably if you’re in the “bad news is good news” camp) to the 53 consensus, and very nearly matched the lowest estimate.
The final read on S&P Global’s services sector gauge for October was 50.6, down from the flash estimate.
“The services sector continues to slow,” ISM’s Anthony Nieves said, describing sentiment among panelists as “mixed with some optimistic about the current steady and stable business conditions and others concerned about such economic factors as inflation, interest rates and geopolitical events.”
Although ISM’s new orders gauge rose smartly, the employment index moved to the brink of contraction at just 50.2. Prices paid ticked lower, but remained elevated at 58.6.
October’s results “paint a far more subdued picture of US economic health than the latest bumper GDP numbers, with October seeing very muted growth of business activity for a third successive month,” S&P Global’s Chris Williamson remarked, adding that the “summer surge in service sector activity, fueled by rising consumer spending, has stalled.”
That’s actually good news. Services sector spending is in no small part responsible for stubborn core inflation. Suffice to say that if spending on services in the US moderates, the Fed won’t be disappointed. As Williamson put it, “an upside to the weak demand environment is the further cooling of price pressures in October, which brings the Fed’s 2% target into focus for the first time in three years.”
Friday’s surveys came on the heels of a big downside miss for ISM manufacturing earlier this week. Taken together, the read-through is straightforward: US economic activity is slowing. And, again, that’s not the worst news in the current macro context, particularly coming on the heels of a Q3 GDP report which was unequivocally hot.
