Implications: The ISM Services index declined in June, the first drop in seven months. Despite this, the index remains at a level consistent with healthy economic growth. With the recent correction in the stock market, as well as rampant economic pessimism lately, it is important to remember that the headline ISM Services index can capture sentiment more than real economic activity. The business activity index, which has an even stronger statistical link with real GDP growth than the overall index, came in at 58.1 in June, a drop from May but still substantially ahead of the headline index. The recent gap between the activity index and the overall headline index is similar to 2003-04, when the economy consistently outperformed downbeat expectations. While the new orders index fell in May, it remains well above 50 as well, more evidence that the future prospects for the services sector remain strong. On the inflation front, the prices paid index dropped to 53.8, signaling upward price pressure but not as much as in previous months. Easy money has yet to catch up to the Federal Reserve and it looks like consumer prices will be up around 2% this year. Next year, we anticipate that consumer prices will be up 3.5% as artificially low interest rates generate higher inflation.
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Posted on Tuesday, July 6, 2010 @ 11:37 AM
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