The Institute of Supply Management (ISM) will be releasing the monthly non-manufacturing PMI report for January today. The report marks the performance of the US services sector in the first month of the year.
Economists forecast that manufacturing activity, as measured by ISM will rise slightly to 55.1. This marks a modest increase from 55.1 in December 2019.
The US services sector has managed to buck the trend so far, unlike the performance in the manufacturing sector. Thus, it is somewhat safe to say that the services sector still remains robust.
Another fact that substantiates this view is the payrolls report for December. The services sector was the biggest driver of jobs which even offset a fall in the net job gains from the manufacturing sector.
So far, the services sector has been bucking the trend. Due to the US and China trade dispute last year, manufacturing was hit hard.
But besides the trade spat, the global economic landscape also turned weaker, as a result of the US going after its trading partners to lower tariffs. After the US economy enjoyed one of the longest patches of expansion since the 2008 global financial crisis, investors are concerned about a downturn in the economic cycle.
The overall result, including the impact of the slowdown in the manufacturing sector, was felt in the fourth quarter advance GDP report.
The US economy maintained a quarterly growth rate of 2.1% for the three months ending December 2019. This was in line with the estimates, albeit economists forecast a much bigger slowdown.
So far, the US economy remains somewhat resilient. Still, with the business cycle heading into the late growth phase, the prospect of strong numbers in the manufacturing sector is a thing of the past.
US Non-Manufacturing PMI to Remain Comparatively Stable
On the optimistic side, economists are hopeful that the current sluggish growth in the non-manufacturing sector is only temporary. But there are no signs of this just yet. In December, the services PMI was higher, despite factory orders falling during the same period. The rebound was largely due to an increase in sales and production.
Besides the ISM’s report, IHS Markit will also be releasing its own PMI data on non-manufacturing.
In recent months, both these measures of the services sector have been somewhat consistent. This is contrary to the reports on the manufacturing where both Markit and ISM’s numbers have been diverging.
Preliminary data from IHS Markit shows that non-manufacturing growth is easing. The flash services PMI suggests that the services sector in the US fell from 52.4 in December to 51.7 in January.
There is scope for the data to beat estimates. This comes as, during the month of January, the US and China signed the phase one deal, soothing concerns. Although the larger issues still remain to be sorted, the impact of the decision could be boosting the services sector.
Besides the global theme, the services sector could feel the pressure of the outbreak from the coronavirus. The hospitality and travel services could see a bit of a slowdown with travel bans being considered amid a host of other measures.
With the manufacturing sector in a slump, the focus will shift to the services sector to do the heavy lifting. Therefore, a weaker than forecast print could see a negative reaction from the markets.
While it is still too early to speculate on the performance of the US economy in the first quarter of the month, today’s non-manufacturing PMI will certainly set the stage for the expectations on growth during the current quarter.