USD Up Again After the Jump in ISM Services

The global economy has been showing considerable weakness as all sectors slow down, with manufacturing already in recession in most major economic zones for quite some time, while the service sector also dived into contraction recently. Eurozone and UK services PMI remain below 50 points which means that activity is continuing to shrink.

Yesterday’s report showed that in August, business activity in China’s services sector showed its slowest growth rate in eight months, as reported by a private survey. The Caixin/S&P services purchasing managers’ index (PMI) fell to 51.8 points last month, down from 54.1 in July. That had traders running back to the USD and away from risk assets such as commodity currencies.

So, everyone was looking for the ISM services report which is the most important data release for the week. Today’s expectations for the US ISM were for a slowdown as well, with risks tilting to the downside, which would send the USD down. But, ISM services surprised the markets and the USD is bac up by around 50pips across the board, so it seems like the bullish momentum will continue for the Buck.

August 2023 US Services Survey from the Institute for Supply Management

• August ISM services 54.5 points vs 52.5 points expected
• July ISM services was 52.7 points

Details:

• Employment index 54.7 points versus 50.7 prior
• New orders index 57.5 points versus 55.0 prior
• Prices paid index 58.9 points versus 56.8 prior
• New export orders 62.1 points versus 61.1 prior
• Imports 52.3 points versus 52.3 prior
• Backlog of orders 41.8 points versus 52.1 prior
• Inventories 57.7 points versus 50.4 prior
• Supplier deliveries 48.5 points versus 48.1 prior
• Inventory sentiment 61.5 points versus 56.6 prior

Comments in the report:

• “Restaurant sales and traffic trends remain positive year over year and compared to pre-pandemic (levels). Hiring is stable, with quality employees available. New California regulations in July included (municipal) minimum wage hikes and implementation of Proposition 12 (a farm animal health and welfare legislation), resulting in much higher pork prices.” [Accommodation & Food Services]
• “Sales on a national level have been strong. Commodity material prices remain stable, and we are finding areas for cost reductions. Material availability has returned to pre-COVID-19 levels.” [Construction]
• “While labor costs continue to soften, costs of pharmaceuticals and supplies remain stubbornly high, negatively impacting operating margins. Supply chains are operating consistently, though some categories of supply remain constrained. Patient volumes and revenues were down slightly (for the month) but appear to be rebounding as back-to-school season approaches. Forecast remains cautiously optimistic.” [Health Care & Social Assistance]
• “The supply chain challenges affect a portion of our buys, as they include products and components made outside of the U.S. and are subject to shipping delays and issues. The prices of materials and other products have slightly increased. Distribution of some direct materials has been altered due to a key supplier financial issue.” [Management of Companies & Support Services]
• “Steady oil and gas production and sales volume. Declining commodity prices seem to have bottomed out.” [Mining]
• “The summer slowdown is similar to those in recent years due to vacations. Third-quarter projections are close to expectation. Inflationary costs are mostly in fuel and fuel-related commodities, having an adverse effect on profits.” [Professional, Scientific & Technical Services]
• “Prices have settled. Warnings of a possible recession in 2024 are not being taken very seriously by top management. The same experts warned that the country would be in a recession by now. Our general feeling is that the (Federal Reserve’s) strategy for taming inflation and building a soft landing for the economy is working better than expected. The city has proposed reducing its municipal tax for the fiscal year beginning October 1.” [Public Administration]
• “Overall conditions seem quite good, although there is definite slowdown in residential construction driven by rapidly increasing interest rates.” [Real Estate, Rental & Leasing]
• “Business activity continues to be lower year over year, but we are meeting the year-to-date forecast.” [Retail Trade]
• “Utility contractors in high demand.” [Utilities]