The Institute for Supply Management (ISM) Services Report showed weakness in the services sector as the Purchasing Managers Index (PMI) unexpectedly fell into contraction (<50%). Dropping out of expansion is rare for the services sector, only occurring outside of a recession six times in the history of the series. It is important to note that each of these instances only lasted for one month.
More concerning is the leading New Orders Index, which plummeted into contraction, sinking from 52.3% to 46.4%. A drop in New Orders below 50% is even more rare than the overall index, and it has only fallen to its current level once outside of a recession.
In addition to an overall slowdown in the services sector, price pressures are on the rise with the Prices Index climbing to 68.7%.
Rising prices and stalling growth is a troublesome combination for the services sector and overall economy. However, one month does not dictate a trend, and it will be essential to monitor next month’s release as continued weakness would signal more serious trouble. In the meantime, we will be watching our time-tested technical indicators like the Negative Leadership Composite (NLC) for signals of opportunity or increasing danger.