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    US Service Sector Confusion

     

    The health of the economically dominant U.S. service sector came into question today as two major indexes of business sentiment pointed in different directions and information in two key areas, exports and employment, seemed to contradict recent hard data from the government. 

    The American based Institute for Supply Management (ISM) reported that its non-manufacturing index came in at 56.5 in March, as expected, down from 56.9 in February and the lowest since an identical score in December.  

    Markit Economics, however, a London analytics and survey company, said that its services purchasing managers index, shot up to 59.2, well ahead of the 58.6 forecast and February’s 57.1 reading. It was the best score in seven months.

    Both indexes use 50 as the dividing line between contraction and expansion. The service sector is about 80% of the American economy

    The ISM survey also reported that its export orders index rose to 59.0 in March from 53.0 the month before. It was the best reading since February 2013.

    That improvement in sentiment came despite the rise in the U.S dollar, which has gained 21 percent against the euro, 18 percent against the Japanese Yen and 20 percent against a trade weighted basket of currencies since last summer.  

    The stronger U.S Dollar makes American goods more expensive overseas. Indeed the Census Bureau reported last week that U.S. exports had fallen 1.6 percent in February, as might be expected, the fourth decline line in a row and the fifth negative month out of the last six. 

    The Institute also noted that the employment index rose, reaching its highest level since last October, at 56.6 in March from 56.4 a month earlier. Yet on Friday, the Labor Department reported that non-farm payrolls added only 126,000 job in March, barely half the forecast and the poorest performance in 15 months. Revisions to January and February reduced their totals by 69,000. 

    The index of business activity fell to 57.5 in March from 59.4 in February, giving the lowest reading in year. The index of new orders climbed to 57.8 from 56.7. 

    The ISM index surveys 300 supply management professionals each month asking the respondents to rate if the topic areas are expanding, contracting or neutral on the a scale with 50 as the division. The survey does not ask for hard data but only for the relative change on the scale.

    Joseph Trevisani

    Chief Market Strategist

    WorldWideMarkets Online Trading

    Charts: Bloomberg

     

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