Instant View: ISM services index below forecast in January

NEW YORK (BestGrowthStock) – The U.S. services sector grew less than expected in January, according to an industry report released on Wednesday.

KEY POINTS: * The Institute for Supply Management said its services index rose to 50.5 in January from 49.8 in December. * That was slightly below the 51.0 median forecast of 73 economists surveyed by Reuters. * A reading above 50 indicates expansion in the sector.

COMMENTS:

KEVIN FLANAGAN, CHIEF FIXED-INCOME STRATEGIST, MORGAN STANLEY

SMITH BARNEY, PURCHASE, NEW YORK:

“The ISM services report is just further evidence that the recovery is afoot. We are still trying to figure out what type of recovery we have.

“The numbers came in positive but we need to see employment

beginning to take part in this recovery as well. To see something on the positive side on non-farm payrolls would go a long way to dispel any fears of a double dip.

“Treasuries have not shown that much of a reaction. It is more (about) the specter of upcoming supply, on top of the Obama budget proposals we got.

“If there is no flight-to-quality trade from concerns about Greece, I think Treasuries sell off.”

MICHAEL SHELDON, CHIEF MARKET STRATEGIST, RDM FINANCIAL,

WESTPORT, CONNECTICUT:

“There wasn’t too much of a reaction (in stocks) to that. The ISM services index increased back into positive territory. Given that the big employment report is coming out this Friday, probably the most important component of today’s services report is the employment component and in the latest month the employment component rose slightly.

This looks like a move in the right direction but doesn’t tell us a whole lot about Friday’s data. That’s really what people were looking.”

PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK + CO, NEW

YORK:

“The services side of the economy is certainly lagging manufacturing because the inventory rebuild theme just doesn’t play out in services to nearly the same extent. Only 4 industries reported growth in January while 11 saw a contraction. Respondents’ comments overall are cautiously optimistic about business conditions.”

ANTHONY NIEVES, CHAIR OF THE ISM NON-MANUFACTURING BUSINESS

SURVEY COMMITTEE, BEVERLY HILLS, CALIFORNIA:

“The index (and the sector) is on the border. It’s over 50 on the composite. When you look through the other indexes that make up the composite they’re all over 50 with the exception being employment. Employment is the big lag right now especially in this sector, holding back the composite index. All signs are pointing to recovery. It’s going to get better. We’re starting to see signs of sustainability as it points to growth in this sector.

“It’s been the case fro quite some time that people have been cutting inventories with the focus on cash liquidity and having that cash flow. There’s been some inventory burnoff as a result of this increased economic activity month over month.”

DENNIS CAJIGAS, SENIOR MARKET STRATEGIST, LIND-WALDOCK,

CHICAGO:

“I think all in all the market is not going to react significantly to the ISM number. There are a few larger issues. You have healthcare concerns and the dollar is stronger here today. The market will disregard some of the numbers from earlier today.

“On healthcare, it’s concerns about earnings and also concerns about taxation, some of the policies that they are looking at. The market seems to be a cautious play today. If we can’t rally here, technically anyway, we may have a bit of profit-taking coming into the close.”

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK:

“You did get an increase but it was a little less than expected. The index is weak relative to the manufacturing index, which was surprisingly strong for January, so there is a bit of a puzzle why the services sector is not doing better. I think the explanation for that is the service sector has not enjoyed the bounce we are seeing in inventories and overseas demand. The U.S. is in a bad sweet spot to ship goods abroad, particularly to the fast-growing Asian nations. The services sector in the aggregate is lagging the manufacturing sector.”

GARY THAYER, CHIEF MACROSTRATEGIST, WELLS FARGO ADVISORS, ST.

LOUIS, MISSOURI:

“It’s above 50 which is good but a little weaker-than-expected. The orders component was up, showing expansion. The employment component was up but still showed contraction. We are not at the point where service sector jobs are being created.”

JOHN BRADY, SENIOR VICE PRESIDENT, MF GLOBAL, CHICAGO:

“It was a touch weaker than expected, but overall pretty quiet. I think the market will shrug this off. Even though the employment component was fairly good, the markets are more interested in Friday’s employment report.”

MARKET REACTION: STOCKS: U.S. stock indexes stay flat BONDS: U.S. Treasury debt prices hold losses DOLLAR: U.S. dollar holds gains versus euro

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Instant View: ISM services index below forecast in January