Wednesday, October 3, 2012

September Services ISM Beats Expectations

September services ISM of 55.1 was above the Street's 53.5.  The employment sub-index actually declined 2.7 to 51.1 from the prior month, indicating we may have over-estimated growth of employment in services in our September NFP projection.  However, we will stick with our 145K NFP estimate.
  • While ISM services' new orders sub-index increased to 57.7 (from 53.7) and inventory declined, backlog of orders went below 50.0, indicating contraction. 
  • Prices increasing for the third consecutive month, combined with decline in backlog of orders, indicate inventory replenishment and/or increase in headcount may take a bit longer.  This also goes along with the ISM report's lower inventory sentiment sub-index.
Overall, while we still think Friday's employment report will beat expectations, the rally may be short-lived.  Then again, that is based on the assumption that markets are based on fundamental, which may no longer be true for a very very long time.

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