Services ISM Beats Expectations While Drop In Employment Index Confirms ADP Beat Was An Aberration

Following the too good to be true ADP number, the December Services ISM number came at 57.1 on a 55.7 consensus and an improvement from November's 55- a multi-year high. Yet the usual casual glance behind the scenes confirms once again that disparate economic data series are in complete contradiction with each other: the employment index declined from 52.7 to 50.5, which makes absolutely no sense in light of the alleged surge on ADP service-related jobs. Even Goldman has nothing good to say: "The decline in the employment index, however, suggests that the strong ADP employment number has considerable statistical distortion and should therefore be interpreted with care." But such is life when one runs a ministry of truth with far too many controllable variables. Furthermore, the economic growth through inventory accumulation is continuing, as inventories increased from 51.5 to 52.5. And most importantly for EPS numbers, kiss those margins good bye: prices paid increased from 63.2 to 70.0. 

Below are the survey respondents comments on the economy:

  • "Overall business climate remains reasonably positive." (Management of Companies & Support Services)
  • "Pricing pressures are starting to heat up." (Construction)
  • "Outlook for 2011 is positive with an increase in spending." (Finance & Insurance)
  • "Looks like more budget reductions are coming in the next year." (Educational Services)
  • "Cotton prices are moving upward, but prices are being kept in line as the overall Asian market cools somewhat."(Retail Trade)
  • "Business picking up for holiday — above expectations." (Transportation & Warehousing)

Summary table:

And most amusingly, Goldman, which was stunned by today's ADP number and said that confirmation of the tremendous beat would be found in the ISM data, has absolutely nothing to be happy about considering the drop in the employment number:

BOTTOM LINE: The ISM nonmanufacturing survey rises ahead of expectations in December, as the indexes for new orders and business activity rise sharply. The decline in the employment index, however, suggests that the strong ADP employment number has considerable statistical distortion and should therefore be interpreted with care.

ISM nonmfg index +3 (3, +1) with +1 judgmental adjustment for strong composition.

ISM index up 2.1 points to 57.1 in Dec vs. GS 56, median forecast 55.7.

1. The ISM nonmfg headline index rises ahead of expectations, up from 55.0 to 57.1 in December. This increase is due to sharp improvements in the index for new orders (up 5.3 points to 63.0) and business activity (up 6.5 points to 63.5). On the basis of this composition, we have judgmentally adjusted the US-MAP reading, which was on the borderline already. The supplier deliveries index eases by 1 point to 51.5.

2. The employment index falls in December (by 2.2 points to 50.5). This decline contrasts sharply with today's upside surprise in the ADP employment report for December-which was mainly driven by gains in employment at service-providing firms-and thus suggests that the ADP surprise should be discounted significantly in considering whether any revision should be made to expectations for Friday's employment report. We continue to evaluate this issue in light of all the new information; pending that review our estimate of a 100k increase in total nonfarm payrolls remains unchanged.

Which is why as we suggested some time ago, the US department of data fudging should import a lot more Chinese individuals who are far better at manipulating bullshit data than the amateurs we have right now.


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