ISM services improve but price pressures showing

The ISM services index in Feb rose to 57.3 from 56.8 which was above expectations of 56.0. It’s at a one year high and was driven by a 3.1 pt rise in Business Activity. Other components though were mixed. New Orders rose almost 2 pts to 61.2 and Backlogs were up by 3.5 pts to 53 but Employment fell 1.7 pts after last month’s jump and Export Orders fell 2 pts. Prices Paid rose by almost 5 pts to the highest since March ’11. Positively, of the 18 industries surveyed, 14 reported growth as ISM said, “the majority of comments from the respondents reflect a growing level of optimism about business conditions and the overall economy. There is a concern about inflation, rising fuel prices and petroleum based product costs.” Bottom line, with services making up at least 75% of the US economy, this data point takes on greater importance as it builds up a history. It thus today points to continued improvement in a key part of the US economy but with inflation pressures being the key caveat. It’s these price pressures (not just energy as CRB foodstuffs index is at highest since Nov) that also tie hands of central bankers which of course has implications for asset markets if sustained.

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