ISM Services Index takes unexpectedly sharp downward turn

The Institute for Supply Management reported this morning that the ISM-Non Manufacturing Index fell a steep 4.5 points to 52.8, the lowest reading since last August and well below analysts’ forecasts. A reading above 50 suggests the broad-based service sector is expanding.



The business activity subcomponent fell a sharp 6.0 points to 53.7 and new orders, a proxy for future activity, plunged 11.4 points to 52.7.

Though pricing pressure continue to cause problems, prices paid did manage to slip by2 points to 70.1.

The slowdown in GDP in the first quarter appears to be carrying over into Q2, according to today’s report provided by the ISM.

Commodity prices have been soaring, and the slow and uneven recovery has not done much to bolster consumer confidence.

Further, the recent jump in jobless claims above 400,000 – assuming the outside possibility this is not just statistical noise caused by the inability to capture seasonality – is worrisome. Three consecutive weeks of elevated numbers, coupled with today’s disappointing ISM report, strongly suggest an uncertain start to Q2.

Though the recovery is not on the verge of stalling, it does look as if we are entering a temporary slowdown in economic activity that will complicate the Fed’s job and potentially slow progress on the job front.



Despite the weakness in the broad service sector, the ISM’s data show that manufacturing continues to support the economy.