FXTimes | July 6 2011 10:19 EDT
The ISM non-manufacturing index, the main measure of overall services activity in the US, showed another month of activity increasing, but the reading for June at 53.4 was below forecasts of a 53.9 reading, and below May’s 54.6.
The internals of the report reveal some interesting tidbits.
First off, we see a huge drop in the prices sub-gauge, from 69.6 in May to 60.9 in June. That means that the strong inflationary pressure that we have seen over the past few months is likely easing. If that comes through in the incoming CPI data that will give consumers a break, and it will also leave the door open for the Fed to decide to keep rates at their low levels for longer if the economic recovery showed further signs of deterioration. But it seems a major headwind – higher prices pushed up by rising food and energy costs – may be easing somewhat.
In terms of activity, the data was not promising. We saw new orders sliding to 53.6 from 56.8 in May, a negative factor. The backlog of orders declined below the 50 level. This is a measure of future activity. Inventories dipped from 55.0 to 53.5.
The employment index meanwhile managed to remain at its levels from May, not saying much considering the weak jobs report we had during that month, but we at least avoid going in the wrong direction. In the ISM manufacturing PMI we saw the employment sub-gauge increase. That should herald a slightly better number for the non-farm payroll report that we get Friday, something in the range of 80K-100K, which is the current consensus range. Nothing to dispell that from the ISM reports.
The immediate reaction in markets has been a movetowardssafety, with the Yen gaining ground against the EUR and USD. The USD was also a bit stronger against the EUR, GBP, and AUD, as US equities have turned downward in today’s session and with the risk factors floating around today – concerns over Portugal and China’s rate hike – the services report missing expectations should not break that sentiment.
Chief Market Analyst
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