ISM services solid but with rising prices paid

Following the solid Jan ISM manufacturing report on Tues, the ISM services index was also very good at 59.4 vs the estimate of 57.2 and up from 57.1 in Dec. It’s now at the best level since Aug ’05. Business Activity rose 1.7 pts, New Orders rose 3.5 pts, Backlogs rose 2 pts and ahead of payrolls tomorrow, the Employment component rose 2 pts to the best since May ’06. Export orders fell by 2.5, but are unlike the export of manufactured goods. With the continued improvement in overall activity again came with rising inflation pressures as Prices Paid rose 2.6 pts to 72.1, the highest since Sept ’08. Of the 18 industries surveyed, 13 reported growth and ISM gave us this sound bite, “Respondents’ comments are mostly positive about business conditions; however, they still remain cautious about the sustainability.” It’s a question we should all ask as we approach June 30th when the Fed is done with QE2 and we see what’s real and what’s not.

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