Econ Data 101: ISM Services #

If you tuned into the markets at all today you probably heard that the "ISM service index" took a nose dive, and the markets followed it down. Here is a brief explanation of what we're talking about-

What it is: The Institute for Supply Management's (ISM) survey of nearly 400 executives from the services industry about purchase and order activity for the previous month.

What it means, from Bloomberg: "Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM non-manufacturing survey's business activity index, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly-and causing potential inflationary pressures."

What today's data revealed, from FTAdvisors: "Today’s ISM report on the service sector was horrible. The survey only dates back to 1997, but the business activity index in January fell to its lowest level ever, while the actual decline was the sharpest on record. To find anything even remotely near these weak readings we need to turn back the clock to October 2001, at the depths of the 2001 recession and in the aftermath of 9/11. Then, the survey was exaggerated to the downside as it most likely is today. Other data do not corroborate this weakness, even the ISM manufacturing index rose in January. The steepness and suddenness of the decline in January – even exceeding the aftermath of 9/11 – suggests the figure can sometimes be driven by moods and sentiment rather than underlying economic output. The ISM snapped back quickly after the 9/11-related drop, as it did after the March 2003, Iraq invasion decline, and we expect the same to happen next month. Meanwhile, the prices paid index continues to support our view that inflation is a growing problem."

"horrible" ISM = DOW down 2.9%, S&P down 3.2%

Also worth mentioning was the fact that today's ISM number was released about an hour ahead of schedule because of concerns that the data transmission system had been breached, causing the data to be found by some market participants before the official release time.