ISM: Service Sector Contracts Sharply
Submitted by
CalculatedRisk on Tue, 02/05/2008 - 6:43am (92 comments)
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Been noticing a lot of posts with this label lately...
Just wow - talk about hitting the wall - is it just me or does the speed of the economy-wide unwind seem a bit breath taking?
Sounds like it's time to cue up another emergency rate cut.
There is an apartment complex that I drive through as a shortcut on the way to work. The residents are primarily Hispanic, and in the trades. usually the parking lot is 2/3 empty when I pass through. The last two months or so it looks like a pickup truck convention. The usual trade guys truck with ladders etc. They are there when I come home now too.
(insert cute picture of cat)
i can haz emergensee rate cut?
Store sales are very weak, reflected in Redbook's +0.2 percent same-store sales tally for the Feb. 2 week. ICSC-UBS earlier this morning reported a +1.6 percent rate, much higher than Redbook but for ICSC-UBS data still the weakest January on record. Chain stores will report their own results on Thursday.
What will the employment numbers be if service sector falls?
Well, at least that explains the over 300 point drop in the Dow.
Tis funny because the dollar went up vs the euro in the last 12 hours because of an earlier v bad ISM for euro zone. But now this US one is even worse.
energyecon, yeah, the pace is picking up now. I expect the NBER to date the recession as starting in December, but it could be January. The numbers this month are just plain ugly.
Best Wishes.
We want yet another 75 basis point cut for another 500 point rally.
(insert cute picture of cat)
You can't just use any cat.
We want yet another 75 basis point cut for another 500 point rally.
If we could just get rid of the zero bound on interest rates, people would never have to work again.
Services ISM at this level correlates to -0.5% yoy gdp. The US is in economic contraction, but still a fairly mild one, so far at least.
"It couldn't be much worse.
Very crisp.
REBear:
What happens when you can't cut rates anymore? What will "B-52" Ben do then?
No, we need tax relief. Wages in service sector go down. Upper middle class has more than enough income but they will stop spending, which will hurt bottom part of economy. Because of multiplier effect reduced taxes will keep everyone happy. I can't believe I said that.
Bargains galore !!!
Let's go shopping !!!
FDIC:those who are against gov intervention are those "shorts" - fuck'em:
Video - CNBC.com
Rate cut? Even an aggressive cutter like Ben wouldn't use up all of his ammunition in one month (would he?). Note that Austalia just raised their rate. It will be interesing to see how the dollar holds up or not.
I just picture Bernanke stripped to the waist down in the boiler room shoveling greenbacks into the furnace.
100% chance of rate cut at next meeting according to the futures. Hmmmmm.
Wow, that's undoubtly a alptraum (nightmare)..
41.9...
I'm pretty sure we see an uptick next month though..
The Fed won't wait to March. Expect another attempt to bail out the stock market. Sooner or later they'll get it. It doesn't work! Let the markets work itself out.
ac,
I believe the best cat for the job is Puss in Boots from Shrek in 'cute mode'...
The strip mall recession is officially underway.
Gosh, these blogs are so ...so...negative. Can't we all just dig deep here and find our lipsticks?
Joe,
I don't know but B surprises everyone with his 'innovative policy'.
But is this surprising? No. The signs have been clear for a long while.
The Fed only has about another 50 bps left in its quiver until ECB cuts, so don't expect anything major and sudden. The Fed already shot off most of its cannons on the theory "The earlier the better".
FWIW, we are in a global battle for money, and the Fed has to keep us competitive.
Now we know what BS Bernanke was thinking about when he lowered FFR by 1.25 in just one week.
btw finance.google.com mysteriously gets the headline/front page dow drop 100 points worse than it should be.
Shop harder !!!
One of the things I've been wondering about is the effect of illegals on employment and retail stats. For example lots of construction jobs went to them, so job losses in construction won't reflect that until they're mostly gone and then suddenly boom, "real" jobs show losses. Much the same thing might be happening in service jobs. Everything looks fine but in reality 100,000's of illegals are being laid off and fleeing back to wherever until legal jobs start caving in. Of course while employed illegals spend money here too so certain retail signs would be flat or dropping while employment still looked OK.
Anyone have any insight into this, or stats?
"Services ISM at this level correlates to -0.5% yoy gdp. [b]The US is in economic contraction, but still a fairly mild one, so far at least[/b]."
I think it would help to look at the [i]trend[/i], not the number in a vacuum.
dammit, wrong tags.
CNBC had a bit yesterday about how negative the financial blogs have become. Could it be that we are spread all over the country and can see the wave coming and they are closeted in Manhattan. Wake up and smell the coffee girls!
Employment is still high, MEW is still high, credit card usage is still high, yet we're seeing a sharp contraction. Where is the hole?
Even an aggressive cutter like Ben wouldn't use up all of his ammunition in one month (would he?).
I'm guessing we're about to find out. If the Fed can cut 1.25% in one week, even what used to be a 5.25% rate can drop to nothing pretty quick.
Say, I wonder if there's a market for placing futures on emergency rate cuts? Placing bets on scheduled cuts is a little too easy, it would be more fun to bet on when--whoops, I mean if--the emergency cuts hit.
CNBC had a bit yesterday about how negative the financial blogs have become.
It's like the weatherman forecasting rain when everyone wants a sunny day. The nerve.
Market holding up OK right now - i'm waiting for a wild swing in either direction.
"Emergency jobless claims report - only 100k! The economy is fine. Dow up 500!)
Viewing with alarm,
I agree, the blogs have helped small time investors get even with big wigs on wall street. In the late 90s, Wall street wasn't looking in the mirror when they predicted loss of brick and motor jobs due to the internet.
Special questions from the ISM NMI January 2008 report:
"Question 1 Is the turmoil in financial markets having any effect on your firm's ability to obtain regular or additional financing?
Yes 14.6%
No 85.4%
Question 2 Indicate how you and your management feel about the next 12 months compared to 2007.
Better 16%
Same 42%
Worse 42%
Diffusion Index 37% "
Interesting.
Medium Al,
If there was any way to track remittances you might get a handle on that (money sent back to the country of origin).
Just so nobody misunderstands what I am about to say, I want to make clear that I think the economy is going into recession, and that while it may not be a deep recession, it is likely to be lengthy by modern standards.
OK, deep breath...
We should ignore the ISM non-factory data. ISM rejiggered the weightings of various components. A Reuters calculation shows that if the index had not been reweighted, it would have come in around 53.
Also note that the index had been utterly lacking in volatility for several months, while the economy and financial markets have been going through the wringer. The ISM non-factory series has been crap for months, so you can't really compare today's reading wtih prior months's and conclude that there has been a big change in the economy. ISM has suddenly got the volatility in the series it should have had over the past 6 months, but that doesn't mean the series is now OK. It isn't. It has been missing what is going on in the economy for a long time. Today's drop may be the result of a changes to the index, rather than to the economy. You know more about the economy without the ISM index right now than with it.
Oh, and ISM leaked the headline index. Clever kids.
of course theres a market for placing bets on intermeeting cuts.
any robust cash of futures market will enable you to take the position, but remember you are trading against the zeitgeist which already HAS an intermeeting cut factored int.
do the math and understand that the interest rate markets are showing the mean belief in effective total return, in other words are integrating out the different times and amounts by which the collective market participants assume there will be a drop in the short end of the curve.
you can also go to a desk and buy a binary or barrier or some such if you have the size, but you should understand that an option that pays off if there has been an intermeeting cut will have a low (very low) payoff, because the premium is the net present value of the conditional expectation, and in english that means since the market assumes there is near 100% probability of such a cut, then for a 45 day option at such low risk free rates has no appreciable time value discount, meaning that you'd be betting a dollar to make a penny.
even more simply, if you went to vegas, what odds would you expect to get from someone on the other side of the trade?
so no theres no free lunch here if you believe in strongly efficient markets.
not to say if you believe the tail is wagging the dog and the markets dictate the fed action.
dunham,
i get the same vibe, FWIW - check XHB up over 4% atm - wonder what fun is getting cooked up in Hedgistan...
k harris,
link
calling bullsh!t on that k harris
Services index plummets, points to recession
Tue Feb 5, 2008 10:04am EST
[snip]
The Institute for Supply Management's index of non-manufacturing plummeted to 41.9 from 54.4 in December, its largest monthly decline on record and a far greater drop than Wall Street expected. A Reuters poll of economists had produced a median expectation of a slip to 53.0
[snip]
Check this blog out for an employment analysis:
Paper Economy - A US Real Estate Bubble Blog: Envisioning Employment: Employment Situation January 2008
Wow what a flurry of volume for nothing.
Did another hedgie blow up again??
MS
Viewing with alarm writes:
CNBC had a bit yesterday about how negative the financial blogs have become.
That's the problem: it's these goddam bloggers. If we could all just listen to the MSM and feel good about the economy, everything would be great!
under the revised methodology, the reading is 44.6 rather than 41.9
AP US Service Sector Contracts in January
Tuesday February 5, 10:03 am ET
[snip]
The Institute for Supply Management reported that its index of service sector business activity declined to 44.6 in January from a revised reading of 54.4 in December. Economists surveyed by Thomson Financial/IFR had expected a slight slowdown but had still expected growth, with a median estimate for the index of 53.
[snip]
energycon, kharris,
I think K is referring to the introduction of the nonmanufacturing PMI (the "composite" index), which happened this month.
Q: Which index in the Non-Manufacturing Report On Business® is a composite index or equivalent to the PMI?
A: Beginning in January 2008, ISM began calculating a composite index for the Non-Manufacturing sector. The new Non-Manufacturing Index, NMI, consists of:
Business Activity \t25%
New Orders \t25%
Employment \t25%
Supplier Deliveries \t25%
link ISM - ISM Report on Business® - ISM Report On Business® Frequently Asked Questions
Instead of giving us rate cuts in dribs and drabs, Bernanke should just go to 0% in an emergency cut, 'cause there's always room for stimulus after that - the Govt needs workers to stuff checks into envelopes, lick envelopes and stamps
, that's like a perpetual stimulus machine.
Bernanke and Bush actions remind me of an apochryphal story I heard in the 70s about Idi Amin. His finance minister walked up to him and told him "Sire, the country is running out of money". Amin's response "Print more notes".
It looks like Amin and Bernanke were schooled at the same economics department.
Prior to that, the economists had focused, I believe, on the "Business Activity" component on the non-manufacturing series. To my knowledge the calculation of that index has not changed.
Can anyone confirm this? Maxed Out Momma?
"Brother can you spare a Benjamin?"
Observation: I was HomeDepot last night buying some closet hardware - the store was empty at 18:30hrs. And I mean empty. On the other hand, some nice spring/summer stuff is arriving to brighten everybody's mood.
David,
Noted above - that is the 44.6 rather than the 41.9 - the ONLY mention of the 53 number is the consensus forecast...thanks for the link to the ISM methodology.
If one wants a look at remittances, try the 10Q's of Western Union.
David,
ISM changes the seasonal factors for all its indices (all the indices that are seasonally adjusted, anyhow) between the December and January release. The Business Actiivity index has undergone that change.
If you look back, you will find that just about every big swing in this index has been followed by a swing the other direction. The October 2001 plunge was almost entirely reversed in the very next month. I would argue that both the lack of volatility in the index through H2 of last year and the record of reversing big swings in the index show that the January reading should not be trusted.
So per govt statistics, manufacturing, which has been in a serious decline for years, grew slightly in December, whereas the service sector, whose growth has been synonymous with US economic growth, hit a speed bump in January.
Hmm.
Anything on that 53 argument k? As in documentation of the Reuters calculation?
k harris,
I don't know if a seasonal adjustment alone could have produced the kind of plunge we saw in the NMI.
I went back and looked at the manufacturing and services series. The spread between the two has never been more than positive 1 (granted, services only goes back to '97), and now it is positive 8.8. The decline in the services sector RELATIVE to the manufacturing sector is the news here. I tells economists (like the ones at ECRI) to throw out their classic "inventory cycle" models.
The consumer is delevering. The overcapacity created by this is not manufacturing inventory, it is employment in the retail, hospitality, real estate, financial services, and entertainment sectors.
In other words, this is a strip mall recession.
Remittances to Mexico were only up about 1 percent from 2007 to 2008. They were negative for several months in 2007.
"Expected growth" of remittances is predicted to be much the same in 2008.
And I want a pony.
k harris,
That is an interesting point on the October/November numbers in 2001, we will have to see if the current events play out the same way as the confidence hit that came after 9/11.
Yossarian,
Are those nominal numbers (my first guess would be yes)? So are we seeing a decline in real terms?
And I am holding out for a pink unicorn (its not for me, really!)
Sounds plausible, D-P-, overcapacity in services --> 'strip mall recession.'
Where's O-Joe and Sebastian saying that this just must be a little blip in the data? The economy's going to grow 3% this year, don't you know?
Remittances to Mexico drop as U.S. economy slows, enforcement increases.
Remittances to Mexico drop as U.S. economy slows, enforcement increases |
News for Dallas, Texas | Dallas Morning News
| Mexico News
David - I think the depth of the January ISM decline is not to be trusted. I kind of dumped ISM as being less reliable than NACM a few years ago.
I pay a lot of attention to Chicago PMI and NACM manufacturing and services. Those tell me that both manufacturing and services are declining and that services will decline again in February. My belief is that the individuals surveyed for ISM are mainly in levels of management that are somewhat insulated from the reality.
It defies belief that consumer services are not going to continue to take a substantial hit until consumer incomes on the whole will at least pace the growth in food and fuel costs. We have a long while yet before that becomes a reality.
The group of Americans who rely on Social Security for a majority of their income alone would produce a drop in restaurant, leisure travel and some retail. They are losing ground very quickly.
I also believe that the surge in refi apps at MBA is real, and that post holiday credit card bills are going to produce a couple of bad months. There's a bit of a slowdown in tax refunds this year because of a late change to the tax code, so January and February should be relatively weak compared to March.
Rail data shows that intermodal is still dropping YoY, but at a slightly faster pace than last year, while carloads (which are mostly commodities such as grains and scrap) are up.
Looking at treasury receipts, WIET is now following FUT and CIT down. So there is no good news, and probably won't be for several months.
The apparent strength of many industrial/manufacturing reports is produced because they can raise prices, and the reports are dollar-denominated. But actual volume of sales doesn't appear to be increasing for most manufacturing. If you look at employment and freight measures, it is declining for most.
Realogy probably worthless:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aW7xKbeyV.Y4&refer=exclusive
Billions down the drain, I forget how many billions.
rcryan,
You out there? What was that you were arguing about a service economy being somehow more stable???
And Miss Market says k harris is...WRONG-O.
Two interesting pieces of data from the report are that exports are increasing nicely while imports are decreasing. Depreciation of the dollar is having an effect.
MoM,
Thanks for your insights - I recommend checking out MoM homepage link for her postings on NACM - good stuff!
Misean,
Thanks for that link. I did not see any reference to nominal vs. real - guessing nominal so down in real terms?
k harris:
"We should ignore the ISM non-factory data. ISM rejiggered the weightings of various components. A Reuters calculation shows that if the index had not been reweighted, it would have come in around 53."
Ok, but which method, old or new, provides a more accurate picture of what's happening? Isn't that more important?
The fun starts.
The Fed already shot off most of its cannons on the theory "The earlier the better".
I think they're right. "Unpanicking" is hard. Better to make a big cut and pull it back fast if needed. The TAF allows them to make a big contraction without the usual broohaha if needed.
I don't think the cuts will be enough, but they were the right thing to try.
"In other words, this is a strip mall recession"
Of course, strip malls are all we have left.
winjr,
What's most impartant is starting from correct premises: the new number is 44.6 which under the old system was 41.9.
The 53 number was the consensus economic forecast and misinformation on the part of k harris.
Remittances to Mexico were only up about 1 percent from 2007 to 2008. They were negative for several months in 2007.
"Expected growth" of remittances is predicted to be much the same in 2008.
And I want a pony.
Yossarian
Per Western Union's 10Q from November:
Remittances revenue to Mexico was down 5% through Sep. 30, while transaction were up.
Remittances to China(+25%) & India(+78%) were through the roof.
energyecon:
"What's most impartant is starting from correct premises: the new number is 44.6 which under the old system was 41.9."
I get it ... strikingly bad, no matter which way you add it up.
winjr,
Well that sure is how it looks to me, though MoM post above on NACM vs ISM - also, go check out her home page for her take on NACM.
While the 53 number is bogus, k harris also raised an interesting point that the October 2001 number was a similar precipitous drop and it all came off the next month. Whether circumstances are comparable is open to debate, time will tell.
MoM,
Thanks for your post. I will add a bigger grain of salt to the ISM services. Still, I do think the relative spread with manufacturing is telling us something.
I have long thought that missing Maxed out Momma page from the blog role was a major ommission. She has consistently been one of the most insightful poster here, and one of the few that are on the same level as Tanta when it comes to mortgage issues (not to many spots open on Mt Olympus). I can only assume that for reasons of her own MOM does not want to be on the blog roll. Then again I have her page bookmarked anyways.
k harris said: "We should ignore the ISM non-factory data. ISM rejiggered the weightings of various components. A Reuters calculation shows that if the index had not been reweighted, it would have come in around 53."
Not sure why we should ignore that. It's more likely that "the market" is panicking as a knee-jerk reaction to a substantially "lower" number that's not actually "lower" at all, only calculated differently.
Furthermore, it's completely at-odds with the manufacturing index which is a lot more sensitive to business conditions.
I thought this was a telling commentary on the alleged "credit crunch."
"Two additional questions were asked in a special poll of the non-manufacturing panel in January.
Question 1 Is the turmoil in financial markets having any effect on your firm's ability to obtain regular or additional financing?
Yes 14.6%
No 85.4%"
ISM - ISM Report - November 2009 Non-Manufacturing ISM Report On Business®
S.
here is another great opportunity to buy all sorts of stuff at panic level pricing.
"here is another great opportunity to buy all sorts of stuff at panic level pricing."
yeah, those "opportunities" just keep on coming don't they..?!
Seb,
Be aware that k harris is dead wrong - the rejiggered number is 44.6 while the old style number is 41.9 - the 53 was the consensus forecast (links and all that upthread).
However you interpret that data, those are the numbers reported by ISM.
I have posted a chart showing how ISM's new NMI index (debuted today) would have looked going back to 1997. Today's reading of 44.575 is the lowest on record (lower than the October 2001 reading in the middle of the 2001 recession).
Financial Sight: ISM's Non-Manufacturing Report Suggests Recession has Started
energyecon said: "Be aware that k harris is dead wrong - the rejiggered number is 44.6 while the old style number is 41.9 - the 53 was the consensus forecast (links and all that upthread).
However you interpret that data, those are the numbers reported by ISM."
And he's one of the posters that I've thought to be credible. Whatever.
Even the 44.6 level is only borderline for economic expansion/contraction, even if it clearly signals a month of contraction in non-manufacturing.
This is the reason I don't rely on any numbers except the ones I can personally verify and get long-term historical datasets on.
Sebastia
Here's an interesting housing-related service sector hit.
Allied Van Lines files BK
Forbes.com File Not Found
cd