Non-manufacturing ISM confidence improved in December, while a worsening was expected. The headline figure came out at 40.6, against the consensus estimate of 36.5, which still indicate a crimp in activity albeit it at a slower pace than in November. Looking at the details, business activity (39.6 from 33.0), new orders (39.9 from 35.4), new export orders (39.5 from 34.5) and employment (34.7 from 31.3) all show a significant improvement. Also backlog of orders and inventory change rose, while imports came out significantly lower. Prices paid fell from 36.6 to 36.0. Both the headline figure and important sub-indices were less negative, a pleasant surprise, but it is too early to conclude that a recovery is around the corner.
In November, factory orders plunged 4.6% M/M, twice as much as expected and the October figure was downwardly revised to -6.0% M/M. Excluding transportation, orders dropped 4.2% M/M. Durable good orders were downwardly revised to -1.5% M/M and non-durable good orders fell 7.4% M/M. The decline in non-durables was led by a 21.0% M/M drop in petroleum and coal products, which is associated with sharply lower rude oil prices. The inventory/shipments ratio rose from 1.33 to 1.41 which indicates that firms will need to build back inventories before considering raising production. Shipments were down another huge 5.3% M/M in November, following already steep declines in previous months.
Pending home sales came out weaker than expected in November falling 4.0% M/M. The previous figure was sharply downwardly revised from -0.7% M/M to -4.2% M/M. Sales were falling in all regions, led by the northeast (-7.2% M/M) and Midwest (-6.7% M/M). These data illustrate that housing market conditions are still deteriorating as labour market conditions worsened and the financial crisis deepened, keeping credit availability an important issue.
EMU: CPI drops below 2.0% Y/Y target
In December, euro zone inflation fell below the medium term ECB target of 2.0% Y/Y. According to the first estimate, CPI dropped from 2.1% Y/Y to 1.6% Y/Y in December, while an outcome of 1.8% Y/Y was expected. It will be interesting to see whether also core CPI will fall back after stabilizing at 1.9% Y/Y in the previous months. In the preliminary report, no details are revealed.
Other: UK services PMI unchanged at record low
In the UK, services PMI came out better than expected (40.2) in December. The headline index stayed broadly unchanged around the all-time low reached in November, while the consensus was looking for a drop to 39.0. Employment deteriorated from 43.1 in November to 40.5 in December. This figure illustrates that conditions remain very fragile in the services sector and a recovery is not yet expected.
