Implications: Today's ISM services report fell short of expectations for the second month in a row. However, 17 out of 18 industries in the survey showed expansion and at 52.8 the overall index signals that the service sector of the economy is still expanding. Most sub-indexes also fell in April when compared to March but remain solidly above 50. On the inflation front, the prices paid index fell to a still very high 70.1 from 72.1. This measure of price inflation will likely remain high, and may move even higher due to the Federal Reserve's loose monetary policy stance. With no end in sight to easy money, inflation will continue to be a thorn in the side of both the manufacturing and service sectors of the economy. The ISM services index often moves based on sentiment rather than actual changes to economic activity. We believe the freakish tornado activity in the Midwest and South in April may have influenced the number last month since today's report seems inconsistent with other data we have on the economy. In other news this morning, the ADP employment index, a measure of private sector payrolls, increased 179,000 in April. We think the official Labor Department report, out Friday morning, will show a private sector gain of about 210,000. Late yesterday, automakers reported that Americans bought cars and light trucks at a 13.2 million annual rate in April, up 0.5% from March and better than the consensus expected 13.0 million rate. Auto sales are up 17% versus a year ago. We expect retail sales in April will come in stronger than the consensus expected 0.5% gain.
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Posted on Wednesday, May 4, 2011 @ 11:04 AM
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