Stick a fork in the soft-data decoupling.
Moments after PMI reported the worst Service PMI since September, the Non-manufacturing ISM also missed, with the headline number dropping from 57.6 to 55.2, the lowest since October, or before the Trump election.
There were declines in three of four key components as business activity and new orders dropped, but most notable was the slide in the Employment sub-index which barely avoided contraction, sliding from 55.2 to only 51.6, the lowest since August, and refuting the post-ADP euphoria. Furthermore, a signal that the reflation trade is also over, the Prices Paid index tumbled by the most in 4 years.
- Business activity fell to 58.9 vs 63.6 prior month
- New orders fell to 58.9 vs 61.2
- Employment fell to 51.6 vs 55.2
- Inventory change fell to 48.5 vs 52.0
- Prices paid fell to 53.5 vs 57.7
- Backlog of orders fell to 53.0 vs 54
The rising subcomponents:
- Supplier deliveries rose to 51.5 vs 50.5
- Imports rose to 56.5 vs 51.0
- New export orders rose to 62.5 vs 57.0
- Inventory sentiment rose to 65.0 vs 64.5
According to the ISM, the non-mfg sector continues to reflect growth; however, the rate of growth has declined since last month. The majority of respondents’ comments indicate a positive outlook on business conditions and the overall economy. There were several comments about the uncertainty of future government policies on health care, trade and immigration, and the potential impact on business.
The full breakdown:
Despite the weakest growth in half a year, the respondents remained generally optimistic.
- "Growth on [a] number of projects has slowed a little, but revenue projections are steady." (Construction)
- "The details of the revisions to the Obamacare program are of great interest to us. There is a large amount of future uncertainty with what will happen. Meanwhile, the business continues." (Finance & Insurance)
- "Health care changes can affect our business. Uncertainty is making us hold on many projects." (Health Care & Social Assistance)
- "Market conditions are still favorable with animal proteins due to [the] strong dollar, low exports and [an] abundant supply. Unknown [are] the POTUS’ policies going forward on trade and immigration.
- "Worker shortages have become a real problem in food production and produce growing areas." (Accommodation & Food Services)
- "Business is picking up. Service labor is tight. New legislation has had significant impact." (Public Administration)
- "Overall, business conditions are favorable, and the outlook is positive." (Retail Trade)
- "Continued optimism regarding the domestic business environment." (Management of Companies & Support Services)
- "First quarter has been brisk, and March has been as busy as I [have] ever seen, with many new endeavors." (Utilities)
Meanwhile, stocks having risen on the recent surge in soft data, are for the time being oblivious to the inflection point, and both the S&P and Dow are trading near session highs, and on pace to regain all time highs.