ISM Non Manufacturing Survey: Lowest Level Since February 2014

Bottom Line: Business activity in the services, construction, and government sectors of the economy decelerated in January but these sectors are still growing at a modest pace. The level of activity has softened a bit with a deceleration in new orders. Employment also decelerated moderately and was its lowest level since January 2015. ISM Non-Manufacturing Employment Index has had strong correlation with the total nonfarm payrolls ex-manufacturing growth in the past. This would normally suggest a downside bias to current expectations for 190k non-farm payroll growth Friday, but presents a more mixed picture given today’s moderate gains in ADP report. The ISM Non-Manufacturing Index FELL by 2.3 points in January to 53.5%, its lowest level since February 2014, compared with market expectations for a small decline to 55.1%. The January reading was moderately lower than its average level over the past 12 months. That said, this was also the 71st consecutive month that the non-manufacturing sector has expanded although the current level of the index indicates that the economy is growing only modestly. New Orders fell by 2.4 points to 56.5% as demand expanded for the 72nd month. Order Backlogs were unchanged and Inventories increased modestly. Employment fell by 4.2 points to 52.1% lowest level since January 2015, indicating that Friday's employment report can be on the soft side (despite the moderate ADP report this morning). Prices fell by 4.6 points to 46.4%.