The recent ISM surveys are very important for the Federal Reserve. it could be argued it was just as important in shaping the narrative of a resilient US economy.
This Friday attention turn to the ISM Non-Manufacturing Index, which basically shows business conditions in the US non-manufacturing sector, and has been driving volatility when released recently.
It is worth noting that the non-manufacturing sector does not influence, either positively or negatively, the GDP as much as the ISM Manufacturing does.
Last month saw a big jump from 49.6 in December to 55.2 in this metric. Not only that, new orders also surged to 60.4, from 45.2, and their highest level since August. Prices paid remained steady at 67.8, while employment was steady at 50.
The resilience of these numbers along with bumper retail sales showed the US economy surged in January with the only question being as to whether this was sustained in February.
A modest slowdown to 54.4 from 55.2 is expected with the employment component also likely to be a leading indicator for next weeks delayed payrolls report.
The ISM Services PMI for the US unexpectedly jumped to 55.2 in January of 2023, rebounding sharply from over a 2-1/2 year low of 49.2 in December, and beating market forecasts of 50.4.
Faster increases were seen for business activity/production (60.4 vs 53.5) and backlogs of order, while a rebound was recorded for new orders.
Also, employment was unchanged (50 vs 49.4) as some companies still find it difficult to fill open positions, while others are facilitating staff reductions. The Fed watches closely the employment metric in this reading.
Also, price pressures eased (67.8 vs 68.1) and supplier deliveries (50 vs 48.5) indicated unchanged performance. I would suggest keeping a close eye on the VIX after the number is released on Friday.