Economists and investors alike are trying to determine whether the stock market correction and volatility is about a financial valuation or about serious economic woes. They are not necessarily tied together as some might expect. Manufacturing data has been weak, hurt from international demand and by the strong U.S. dollar. Now the Institute for Supply Management (ISM) showed that the non-manufacturing showed slowing growth for the third consecutive month.

Wednesday’s ISM report does indicate that the non-manufacturing sector still is above water, and that it has now grown for 72 consecutive months. Still, the reading of 53.5 was below the prior month’s reading of 55.3 (55.8 revised). It was also a full two points short of the Bloomberg and Dow Jones consensus estimates of 55.5.

Bloomberg even showed its Econoday range of estimates being 53.0 to 56.5. That means it was not worse than every single economist had predicted, but it is not usual to see a full two point shortfall. Another huge negative here is that the prices component is coming down, much faster than expected considering that many services are not just based on lower oil and commodities —prices decreased in January for the third time in the past five months.

The long and short of the matter was that this represents continued growth in services sector at a slower rate. Additional ISM data was seen as follows:

• The Non-Manufacturing Business Activity Index decreased to 53.9 percent, which is 5.6 percentage points lower than the seasonally adjusted December reading of 59.5 percent.
• The New Orders Index registered 56.5 percent, 2.4 percentage points lower than the seasonally adjusted reading of 58.9 percent in December.
• The Employment Index decreased 4.2 percentage points to 52.1 percent from the seasonally adjusted December reading of 56.3 percent and indicates growth for the 23rd consecutive month.
• The Prices Index decreased 4.6 percentage points from the seasonally adjusted December reading of 51 percent to 46.4 percent, indicating prices decreased in January for the third time in the last five months.
• 10 non-manufacturing industries reported growth in January — Finance & Insurance; Real Estate, Rental & Leasing; Utilities; Retail Trade; Information; Construction; Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Management of Companies & Support Services; and Public Administration.
• 8 non-manufacturing industries reported contraction in January — Mining; Educational Services; Wholesale Trade; Other Services; Arts, Entertainment & Recreation; Accommodation & Food Services; Transportation & Warehousing; and Professional, Scientific & Technical Services.
• The majority of the respondents’ comments are positive about business conditions; however, there is a concern that exists relative to global conditions, stock market volatility, and the effect on commercial and consumer confidence.

Right now the markets want more growth. Even if the growth comes with some inflation and could let the Federal Reserve move rates higher, what everyone is unilaterally hoping for is that the United States does not tip back into a recession during an election cycle.

The Dow Jones Industrial Average had been up handily at 16,255 at the peak on Wednesday. The last reading was now down 151 points at 16,002, and much of that drop-off came after the 10:00 a.m. ISM release. As a reminder, the United States has been more of a non-manufacturing economy than it has been a manufacturing economy for years now.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.