ISM services index drops, tariff worries reflected

The November ISM services index fell to 52.1 from 56 and that was well below the estimate of 55.7. it’s also a 3 month low. New orders declined by 3.7 pts to 53.7 and backlogs were down to 47.1 from 47.7. Inventories plummeted to 45.9 from 57.2. With the jobs data this week, the employment component dropped to 51.5 from 53, and thus a touch above the breakeven of 50. Export orders, which only some service businesses have, fell under 50 for the first time since October at 49.6. Supplier deliveries dropped by almost 7 pts to back below 50 at 49.5 which actually implies shorter lead times which is a good thing. Prices paid were little changed at 58.2 which is just above the 6 month average of 57.7. Of the 18 industries, 14 paid higher prices vs 15 in October and 12 in September.

In terms of industry breadth, 14 of 18 surveyed saw growth, the same pace seen in October. Three had a contraction with ‘real estate, rental & leasing’ one of them, not surprisingly.

Of note on employment, just 5 saw growth, matching the least seen this year. Some respondent comments on the employment side, “Actively filling open positions” and “Hiring freeze in place; not backfilling positions as people retire or leave the company.”

With backlogs, “We are able to fulfill our orders with current warehouse stock” and “ Capacity meeting backlog; slower future demand.”