US ISM services set to reflect a slowdown in activity towards the end of last year | investingLive

The estimate is for the headline PMI reading to drop to 52.3, down from 52.6 in November. That will point to a further moderation in business activity to round up the year, as reflected in the S&P Global PMI report yesterday here. If the ISM print matches the estimate, that will be the softest reading since September last year.

Now, overall activity is still expected to remain in expansion territory. So, the reading is not going to point to major trouble but just some moderation in the growth momentum.

Looking at yesterday’s report by S&P Global, there are a couple of key downside points to note. For one, new orders were especially weak as new business
placed at services providers showed the smallest rise in some
20 months. That points to some softening in demand conditions and one that could extend into the new year.

The other key point is that employment conditions stagnated on the month, failing to rise for the first time since February. S&P Global noted that the fall is negligible but it does put an end to a nine-month sequence of continuous growth. Of note, cost concerns, budget constraints and the
downturn in demand growth were cited as reasons for the lackluster
trend in employment.

So, those are some things to watch out for when we get to the ISM report later.

Besides that, one of the more focal points will be the prices paid component – which fell quite sharply in November. In fact, the drop from 70.0 in October to 65.4 in November represents the largest in 21 months. That saw the component drop to its lowest since April but is still sitting well above historical levels.

What about December then?

MNI notes that the signal is a little more mixed based on regional Fed surveys. They note that Dallas was the only one of five Fed surveys to report a dip in prices paid from November to December. Meanwhile, New York and Philly reported noticeable upticks in prices paid pressures. At the balance, it points to a slightly higher prices paid gauge this time around.

So, that is likely to help deflect the sharp drop in November as prices stabilise in December; that is if things play out expectedly.