Good news, bad news. Which do you want first?
I’ll break with precedent and start with the good news.
The US services sector — the most important part of the world’s largest economy, at least until Donald Trump and Howard Lutnick put Americans to work in sweat shops making sneakers — held up reasonably well in April, according to the marquee gauge of activity among service providers.
The ISM services headline was a solid beat at 51.6 Monday, versus 50.3 expected. The key demand measures were all decent, even as the production metric moved lower from March to 53.7. New orders improved to 52.3 after coming perilously close to contraction-territory the prior month.
The final read on S&P Global’s US services PMI, also released on Monday, was 50.8. That was actually down from the flash read and the lowest since November of 2023. So that news isn’t great, but I wouldn’t call it “bad” either.
As you might expect, tariff mentions were pervasive in the ISM anecdotes, but not as prevalent as they were in the panelist quotables from last week’s manufacturing release. Someone in Real Estate, Rental & Leasing told ISM’s Steve Miller that, “The US government has been maddeningly inconsistent with tariff implementation.” What can I say? What can anyone say? Sometimes you gotta laugh at life.
Now for the promised bad news. ISM prices paid was 65.1, up more than 4ppt from March and the highest in more than two years.
At the same time, the employment gauge printed in contraction territory again, even as it improved from the prior month’s wholly lackluster readout.
I should note that economists expected the employment index to fall further, so the improvement (from 46.2 to 49) actually counted as a meaningful beat. But the prices update likewise counted as a beat, and “beat” isn’t a good thing in that context.
Bottom line: Monday’s sole, lonely macro release was a mixed bag. As BMO’s Ian Lyngen put it, ISM was strong enough to “reinforce the idea that the US is entering the trade war on solid footing.”
And yet, S&P Global’s Chris Williamson sounded a word of caution. “While tariff announcements mean manufacturing dominates the news, a worrying backstory is developing in the vastly larger services economy, where business activity and hiring have come closer to stalling amid plunging confidence.”
We know that those type of manufacturing jobs aren’t coming back to the US, Lutnick himself let that slip in a recent interview. But…in a world of rapidly accelerating automation and robotic developments, the idea of bringing manufacturing back to the US makes perfect sense. The advantage of cheap labor is fading. If something doesn’t change, then in a decade even more capital will have been deployed overseas and supply chains will be even more deeply entrenched, China will still be the main manufacturing hub and yet the factories will be devoid of people and so could have existed closer to the source of energy for production and closer to the consumer for finishing. i.e. in the US. It is completely disingenuous to frame reshoring manufacturing to the US as a boon for manufacturing jobs, but as a long term plan for the health of the US economy, it makes sense.
Might not mean much to some, but West Marine store near me, and people at the registers on overtime, knowing their own sales history at the beginning of boating season here were surprised with me that there was no one in the store. Empty, new one on me, even during recession, I never saw it before.