More disappointing US data today in the form of the July ISM services index, which fell to 50.1 from 50.8, rather than rise to 51.5 as predicted by the consensus. As with the manufacturing ISM survey from last Friday, this was weaker than anyone surveyed predicted.
Employment fell to 46.4 from 47.2, which doesn’t bode well for August’s jobs report given we already knew the manufacturing employment version dropped to the weakest level since June 2020. If we weight them 90% for services and 10% for manufacturing we see that these readings are historically consistent with non-farm payrolls dropping by more than 100,000. While the relationship with payrolls hasn’t been as strong since the pandemic, at the very least it suggests we should be braced for soft jobs growth through the second half of the year at the very least. In particular, Federal government workers who accepted the severance packages from the Department of Government Efficiency are set to drop off employment numbers in September.