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ISM Services PMI Falls Short of Expectations, Housing Declines

by on January 6, 2014 4:07 pm GMT
 

The Institute of Supply Management (ISM) services index fell short of expectations coming down from 53.9 to 53 in December. Orders in the corresponding month fell for the first time since 2009 as orders in 11 industries declined.

Higher interest rates continue to threaten the housing rally (bubble?), which has been a core strength in 2013. “There’s still a valid question of the impact of rising interest rates on the broader economy — though housing is still expanding, the pace of growth is decelerating,” said Russell Price, senior economist at Ameriprise Financial Inc. Price still remains optimistic, as many do, even though positive data has began to since the Federal Reserve’s decision to taper last month.

“The fundamental drivers of a housing recovery remain in place, although conditions are not as favorable as they were six months ago,”said Jeffrey T. Mezger, CEO of  KB Home, in a December 19 conference call. However, Mezger also indicated that housing was still affordable despite the higher mortgage rates and average house prices.

A chart provided by Business Insider shows both the 10- and 20-city Case/Shiller Housing Composite reaching levels prior to the housing bubble. Still affordable?

Provided by Business Insider; Information provided by S&P DOW Jones Indicies and CoreLogic

Provided by Business Insider; Information provided by S&P DOW Jones Indicies and CoreLogic

 

The ISM measure of new orders in the service industries declined to 49.4 in the previous month from 56.4, marking the lowest month since May 2009. Those industries affected were warehousing, transportation and mining, while retail trade, finance, and construction see growth in orders.

Non-Manufacturing employment increased to 55.8 from 52.5 in November. Business activity declined from 55.5 to 55.2. European services PMI data was mixed. Spanish data improved from 54.2 from 51.5, but the United Kingdom data fell from 60 to 58.8. Italian services PMI expanded to 47.9 from 47.2 but fell short of the 48.9 expectations.