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MNI INTERVIEW: US ISM Services Miss Doesn't Signal Concern Yet


Slower growth in U.S. services during October probably doesn't herald the start of further deterioration in business activity, but could indicate growth is likely on a more moderate path, Institute for Supply Management chair Anthony Nieves told MNI Friday,

The ISM services survey weakened to 51.8 in October from 53.6 in September. That was the lowest since May and below expectations of 53, with the decline driven by weakness in current business activity, employment and inventories.

Still, Nieves said he's "not overly concerned," adding the 3.7ppt increase in new orders at 55.5 "indicates that this last quarter is still going to be fairly strong, especially going into the retail season. I don't anticipate us having any pullback next month on the composite, with that being the leading indicator."

"The services sector is fine. It's not great but it's moving along," he said, expecting a move down in GDP growth this quarter from the prior quarter's torrid 4.9% pace. The New York Fed Staff Nowcast stands at 2.4% for the fourth quarter, down from 2.8% last week, while the Atlanta Fed's GDPNow estimate is 1.2%.

"The majority of respondents still have a positive outlook going forward and all indications are for positive growth going forward in 2024," he said. "I'm not hearing recession as much as it was in the past, four or five months ago."


Nieves said the economy is "set up" for a soft landing, and it helps that the Federal Reserve has stopped raising interest rates for the time being. The ISM services chief said survey respondents are not commenting on the recent run-up in long-end Treasury yields and tightening in financial conditions. (See: MNI: Yield Spike Cuts Chance Of Fed Dec Hike, Q1 Still In Play)

Instead, "they're still talking about inflation even though the prices index is still moderating," Nieves said. The prices subindex eased 0.3ppts to 58.6. "Prices are still increasing but at a much slower rate. That is also combined with slightly less demand as well as the improvements that we've seen in the supply chain."

Nieves said there was no discernible effect on the services PMI from the UAW strike, the Israel-Hamas war, or the chaos in Congress over electing a new speaker. But he said there has been a clear hit to sentiment, with survey respondents commenting on souring consumer confidence.

"The SAG-AFTRA strike has definitely impacted arts, entertainment, recreation," he noted. "One of our respondents said their Middle Eastern business ceased at this point. That's concerning."

The employment subindex fell 3.2pps to 50.2, close to the 50 mark that separates growth from contraction. Nieves stressed that comments about employment continue to be mixed and sector-specific.

"There are companies saying they can't find the mid level managers and the line level workers. But for the senior level side of things, that's a little bit more competitive and they have the ability to pick and choose."

MNI Washington Bureau | +1 202-371-2121 |
MNI Washington Bureau | +1 202-371-2121 |

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