US Service Sector Grew More Slowly in January
Why Are US Companies Paying More despite Slower Growth?
ISM non-manufacturing sector stood at 53.5 in January
According to ISM (Institute for Supply Management), the non-manufacturing (or NMI) sector fell by 2.3 points in January 2016 to 53.5, compared to an upwardly revised 55.8 in December 2015.
With a fall in the service sector, the SPDR S&P 500 ETF (SPY) and the Direxion Daily S&P 500 Bull 3X ETF (SPXL) have fallen 4.9% and 7.1%, respectively, over the past month as of February 4, 2016.
Healthcare stocks Pfizer (PFE) and Bristol-Myers Squibb (BMY) have fallen 9.9% and 12.7%, respectively, over the past month as of February 4. Financial services stocks Barclays (BCS), Morgan Stanley (MS), Bank of America (BAC), and Goldman Sachs (GS) have fallen 19.8%, 20.0%, 19.4%, and 10.1%, respectively, over the same period.
Business activity reported slower growth
In January 2016, most NMI indexes reported slower growth. Business activity, new orders, and employment grew, but at slower rates. Fear of the slowdown in China and market volatility coupled with regional weather conditions affected sales in the United States. Employment also fell by 4.2 points to 52.1 as companies undertook right-sizing initiatives in January.
Prices and inventories fell
An economic slowdown, further decline in crude prices, and minimal supplier pricing power resulted in a fall of 4.6 points in the price index to 46.4 in January.
Companies were cautious about maintaining inventory levels in January. Inventories fell to 51.5 as service providers kept low inventory levels.
Exports and imports contracted
Both new exports and new imports contracted in January. The rise in the US dollar against world currencies led to a fall in export trade during the month. Slower growth in new orders kept imports at lower levels also.
Markit’s services PMI fell by 1.1 points to 53.2
Markit’s recently released services purchasing managers’ index (or PMI) stood at 53.2 in January 2016, a fall of 1.1 points against 54.3 in December 2015. Markit reported slower growth in business activity and a rise in new work at a softer rate.
Read January ISM Manufacturing Showed a Mixed Picture to learn more.
For updates on the economic front, please visit Market Realist’s Global ETF Analysis page.
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