ISM Services Weaker, Especially Employment; Bonds Hold Ground
The ISM Non-Manufacturing (aka ISM Services) data came in weaker than expected. The headline was only moderately weaker, and somewhat offset by an increase in New Orders--a theme also present in the Manufacturing version of the report. That's consistent with the notion of a weather-related slowdown affecting near term business, but not shutting down longer-term demand. That said, the weather can't fully explain the change in the employment component of the data, which fell to it's lowest level since March 2010.
- Services PMI 51.6 in Feb vs 53.5 forecast, 54.0 in Jan
- Lowest since Feb 2010
- Business Activity 54.6 vs 55.1 forecast
- Prices 53.7 vs 57.1
- New Orders 51.3 vs 50.9
- Employment 47.5 vs 56.4
- Thoughts: market optimists are still going to say that these "lowest since 2010" numbers are obviously dragged down by the weather and while the data may have been weaker without the weather impact, it wouldn't have been that week. The counterpoint still suffers from the inability to prove otherwise until we get data covering a non-snowy month.
Bond markets have responded generally favorably, with MBS moving back to positive territory (up 1 tick currently) and 10yr yields very close (2 bps lower than pre-data levels). Considering the magnitude of the 'miss,' however, these aren't very big reactions. This either suggests that some market participants are on board with the weather-related arguments or that they're simply trying to keep trading levels in the pre-Ukraine neutral zone closer to 2.74 (thus not willing to rally too much from 2.72).