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Resilient ISM Service Activity Whilst Employment Falls On Supply

  • ISM Services comes in stronger than expected as it only dips from 55.9 to 55.3 (cons 54.0) contrary to the large miss in last week’s manufacturing index, building on the upward revision seen in the final PMI just earlier.
  • Reasonable details including business activity firming to 56.1 (+1.6) and new orders only falling 2pts to 55.6 compared to 6pt drop in manufacturing new orders into contraction for the first time since May’20.
  • Of note ahead of payrolls, one of the weaker areas of the report was employment falling 2.8pts to 47.4, the lowest since Jul’20. Comments indicate it’s more down to supply constraints: “Unable to fill positions with qualified applicants” and “Extremely hard to find truck drivers.” “Demand for talent is higher, but availability of candidates to fill open roles continues to keep employment levels from increasing.”
  • Combined with a smaller fall in job openings than expected in May from an upward revised April, Tsy yields have lurched higher, driving a sizeable bear flattening on the day with front end yields +8bps, 5Y +5.5bps and 10Y +5bps.

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