Headlines fine but need to look under the hood of the data

The December ISM services index rose to 54.1 from 52.1 and just above the estimate of 53.5. That compares with 56 in October. New orders were up by .5 pt to 54.2 and vs the 6 month average of 55. Backlogs remained depressed at 44.3 though, down 2.8 pts m/o/m. After dropping by 11.3 pts in November, inventories lifted by 3.5 pts to 49.4. Ahead of the jobs data this week, the employment component was little changed at 51.4 vs 51.5 last month. Supplier deliveries got back above 50 and prices paid jumped by 6.2 pts to 64.4 which is the highest since February 2023. Of 18 industries asked, 15 are paying higher prices vs 14 last month.

Helping the Business Activity component which rose to 58.2 from 53.7 and 2 pts above the 6 month average was the pre tariff pull forward. ISM heard this from respondents, “Receiving orders for next cycle earlier than usual” and “More activity around possible higher tariffs impacting the supply chain.”

Notwithstanding the headline lift, in part because of the rise in Business Activity and supplier deliveries, the breadth of growth softened. Of 18 industries surveyed, 9 saw growth vs 14 in November and that is the least since June while 6 said their business is contracting vs 3 last month.

On employment, the ISM got this from respondents, “Staging for future growth” on one hand and “hiring freeze” on the other. There was a pick up in the number of industries seeing growth in employment to 9 from 5 but it was 9 in October too.