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US Services and Factories Slow, Equities, Treasury Yields Fall, Dollar Gains

Posted by Joseph Trevisani on Jan 6, 2015 12:48:00 PM

The U.S. service sector expansion fell further from its summer high and manufacturing orders dropped for the fourth month in a row indicating that economic growth likely cooled in the final quarter of the year.

The Institute for Supply Management's non-manufacturing index dropped to 56.2 in December from November's 59.2, well below the 58.0 forecast from the Bloomberg survey of economists. The post-recession peak of 59.6 in August was the highest since 2005. 

The ISM manufacturing index, issued last week, also tumbled to 55.5, a six month bottom, from 58.7 in November. That analysts' estimate had been 57.5. 

In a separate report from the Census Bureau of the Commerce Department at 10:00 am, factory orders in November declined 0.7 percent, almost double the -0.4 percent prediction and matching the 0.7 percent decrease in October. U.S. manufacturing is slowing as orders from overseas drop off with Japan in recession and receding growth in China and the euro zone. 

A survey from Markit Economics of London showed a drop in service activity in December as well. Their purchasing managers' index slipped to 53.3 from a preliminary reading of 53.6. This poll has fallen for six straight months after its three year high of 61.0 in June.

The methodology of both surveys is similar. A reading greater than 50 indicates expansion, below contraction. 

Equities had opened higher at 9:30 am with the Dow climbing 80 points in the first hour and the S&P adding 10 points. But plunging crude oil prices, West Texas Intermediate traded to a low of $47.74 in New York, its cheapest in almost five years and a steep decline in Treasury yields, the 10 year touched 1.89 percent, highlighted the economic unease that has characterized stocks so far this year. The Dow was down 157 points at 17,345 at 2:00 pm and the S&P had lost 25 points to 1996. 

In mid-afternoon the dollar has shed some of its earlier gains, exchanging at 1.1933 versus the euro after touching a more than eight year high of 1.1864 yesterday. The dollar/yen was trading at 118.33 having been as high as 119.64 earlier. 

Treasury prices were higher on the day, though down from their earlier top. The 10 year yield was 1.94 percent at 2:15 pm, up from its low of 1.89 percent but still the second lowest yield in over 18 months.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

ism jan 6

 markit jan 6

factory order jan 6



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