The ISM Non-Manufacturing Index for December slipped to 57.6 from 60.7 in November. This is by no means a soft number but may look a bit disappointing after the string of three months at 60+ and coming in below the median estimate of a market survey. Although the index component for business activity was down (59.9 vs 65.2), new orders managed to eke out a small gain (56.3 vs 58.4) The employment index was lower as well (56.3 vs 58.4), as was that for supplier deliveries (51.5 vs 56.5).
This as not a bad report. However, in combination with the ISM Manufacturing Index decline (54.1 vs 59.3) it will add to the widespread sense that the economy is back to the lackluster pace of growth in place before the tax package was enacted in December 2017.
The composition of the numbers suggest that activity may be off the hectic pace of recent month but is still consistent with a moderately expanding economy. Service sector businesses are still hiring at a solid pace and the levels for activity and production also remain elevated. The drop off in delivery times indicates there should be less upward pressure on prices due to scare inputs of materials. Importantly, the decline in inventories means service businesses will not need to abruptly adjust stocks on hand should the economy slow early in 2019.
There is also some good news in the increase in the new export orders subindex (59.5 vs 57.5) despite the uncertainties related to trade. Survey respondents noted that some ordering came in ahead of 2019 to try to avoid higher tariffs. The import subindex dipped (53.5 vs 54.5) a small decrease that kept the index in line with recent months.
The prices paid for the service sector fell (57.6 vs 64.3) and was probably due to the continued declines in gasoline prices which tends to benefit services operating costs.
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