KEY POINTS OF ISM SERVICES:
- August’s ISM Services PMI climbs to 56.9 from July’s 56.7, beating expectations calling for a drop to 55.1
- Better-than-expected data suggests economy remains resilient
- The recovery in the services sector is supported by a rebound in production, new orders and the employment component of the survey
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A gauge of U.S. business services activity unexpectedly rebounded last month, albeit at a modest pace, defying the pessimistic narrative from some corners of Wall Street and allaying fears the country is heading into a painful recession, undermined in part by rising interest rates aimed at curbing galloping inflation.
According to the Institute for Supply Management (ISM), the non-manufacturing PMI for August rose to 56.9 from 56.7 in July, expanding for the 27th straight month and beating expectations calling for a decline to 55, 1, a sign that the economy remains extraordinarily resilient. For context, any reading above 50 indicates growth, while readings below this level indicate contraction in production.
RESULTS AT A GLANCE
Source: DailyFX Economic Calendar
Looking under the hood, the service sector, where most Americans work and most important to GDP calculations, was supported by a slight recovery in production, new orders and employment components of the economy. survey, indicating that the demand environment is positive despite the tightening financial conditions. All of this suggests that the Fed might still be able to pull off the elusive soft landing.
Elsewhere, the prices paid index continued to moderate from readings in previous months, standing at 71.5 from 72.3 at the start of the current quarter. Cost relief for US businesses could result in lower CPI figures later in the year, but bigger improvements are likely needed to more significantly mitigate the impact of skyrocketing inflation in all sectors.
ISM SERVICES DATA
Source: Institute of Supply Management
The ISM services sector survey follows the group’s report last week on the manufacturing PMI, which showed resilient economic expansion and a sharp moderation in the growth of prices paid, two encouraging developments for policymakers, who are trying reduce inflation while preventing a hard landing with deleterious effects for most Americans.
Taken together, the recent data may help ease concerns about a major downturn. However, with an economy holding up well and inflation well above the central bank’s 2% target, the Fed is likely to continue its plans for steady interest rate hikes in the coming months, delaying a pivot. monetary policy for the foreseeable future. While constructive for the US Dollar, this scenario is likely to inject volatility from time to time, preventing equities from mounting a sustained and lasting rally.
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—Written by Diego Colman, Market Strategist for DailyFX