Surveys gauging the health of the service sector point in opposite directions
Surveys gauging the health of the service sector point in opposite directions
We have a tale of two service sectors today. Two surveys measuring service sector activity in February came out Wednesday, one from the Institute for Supply Management and the other from S&P Global.
But while the ISM survey showed strong growth in services, the S&P survey showed “a worryingly weak picture of service sector business conditions.”
“It’s some healthy, healthy improvement,” said Steve Miller, chair of the ISM Services Report on Business, about his group’s optimistic report.
Meanwhile, Chris Williamson, chief business economist at S&P Global Market Intelligence, had a more pessimistic outlook based on his firm’s survey. “It’s now reporting the weakest output growth since November 2023.”
Two reports, two seemingly different outcomes. The discrepancy could be caused by several things, including who’s answering the surveys. Gary Schlossberg, global strategist with Wells Fargo Investment Institute, said ISM mostly checks with corner office-type purchasing and supply executives.
“The S&P Global number, they also survey people on the shop floor, so it’s a little closer to the action,” he said.
Then there’s the question of timing. The glass-half-full ISM report allowed companies to respond throughout the month. The glass-half-empty S&P survey took answers only in the second half of the month, when the stock market was dropping and tariffs were looming.
“Especially at times like this, things can look good early in the month and collapse late in the month,” Schlossberg said.
Once-a-month data drops aren’t always enough to keep up with changing conditions, he added.
“It’s for that reason we keep an eye on the high-frequency data to corroborate what we’re seeing in the monthly numbers,” he said. That data includes weekly reports on retail sales and mortgage applications.
There was at least one common thread between the two surveys, which both Miller of ISM and Williamson of S&P Global noted: the impact of tariffs.
With those tariffs in effect now, next month’s surveys could have answers everyone agrees on.
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