Implications: Another piece of data, another Plow Horse report. Today's ISM services report came in at a respectable 53.7, signaling continued moderate growth in the service sector. Nothing in the report is reason to worry or reason to get too excited. The report is the 41st consecutive reading above 50, signaling expansion. The business activity index, – which has a stronger correlation with economic growth than the overall index – rose to a very solid 56.5. The worst news was that the employment index fell to 50.1 from 52.0. This fits in with the slightly weaker numbers that we saw in the ADP employment report earlier today and fits with our forecast of a moderate 153,000 gain in nonfarm payrolls in May. The ISM surveys can sometime reflect the vagaries of business sentiment rather than actual levels of service sector output. Pessimistic analysts have been touting the end of the payroll tax cut and the federal spending sequester as reasons to expect weaker economic growth. But the truth, from looking at the data over the past few months, is little to no significant impact from these events on the consumer or economy and we do not think there will be. We have yet to see any data that pushes us off our forecast that the US economy will grow in the 2.5% to 3% range in 2013. On the inflation front, the prices paid index fell to 51.1. Right now, inflation is not a problem. But monetary policy is very loose and we still expect it to be a gradually growing problem over the next few years.
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Posted on Wednesday, June 5, 2013 @ 12:10 PM
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