February 2016 ISM Services Index Essentially Unchanged

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, but declined insignificantly from 53.5 to 53.4 (above 50 signals expansion). Important internals likewise declined, however, and remain in expansion. Market PMI Services Index was released this morning, was in contraction, and also declined.

This was below expectations (from Bloomberg) of 52.0 to 54.0 (consensus 53.1).

For comparison, the Market PMI Services Index was released this morning also – and it weakened marginally. Here is the analysis from Bloomberg:

Released On 3/3/2016 9:45:00 AM For Feb, 2016

	Prior	Actual
Level	53.2	49.7

Highlights
Markit Economics’ U.S. service sample reported unusually flat activity in February with the final PMI at 49.7 vs 49.8 for the February flash and against 53.7 in January. This is the weakest reading since the government shutdown of 2013.

New orders are still growing but, after three months of slowing, are at their weakest pace since January last year. The 12-month outlook, though still positive, is the least positive in 5-1/2 years. Hiring, in an upbeat indication for tomorrow’s employment report, is still solid but how long it can sustain strength is in question. Price data are not favorable with inputs down and selling prices down at a 5-month low.

Slowing in the service sector would leave the economy without a central point of strength. The declines in this report, though possibly reflecting weather factors during the month, do raise the important question whether domestic demand is on the downswing and falling in line with sinking demand overseas.

There are two sub-indexes in the NMI which have good correlations to the economy – the Business Activity Index and the New Orders Index – both have good track records in spotting an incipient recession – both remaining in territories associated with expansion.