Services PMI Exceeds Estimates But Remains In Contraction Territory

Key Insights

• Services PMI dropped from 46.2 in November to 44.7 in December, exceeding analyst estimates.
• Services PMI remains in contraction territory for the sixth month in a row. 
• Traders will likely stay focused on today’s job market data. 

The Services Industry Remains Under Pressure

On January 5, U.S. reported that Services PMI declined from 46.2 in November to 44.7 in December. Analysts forecasted that Services PMI would drop to 44.4, so the report exceeded expectations. Numbers below 50 show contraction.

The Services PMI is falling for a third month in a row. The services industry remains under pressure since July 2022, when Services PMI fell below the 50 level.

Interestingly, job markets remain in a decent shape despite problems in the services segment. Today, ADP Employment Change report showed that private businesses added 235,000 jobs in December. Initial Jobless Claims declined from 223,000 to 204,000.

The Fed believes that the job market is too tight, so it is focused on jobs data. In this situation, the weak PMI data should not have a material impact on Fed’s thinking in the near term. Most likely, the Fed will stay hawkish, which is bearish for riskier assets.

U.S. Dollar Index Tests New Highs After PMI Data

S&P 500 has started to rebound from session lows after the release of the PMI data. Today’s job market reports put significant pressure on stocks as the strong job market leads to a more hawkish Fed.

Treasury yields are moving higher, which is bearish for precious metals. Gold declined towards the $1835 level, while silver settled near $23.30.

The U.S. Dollar Index moved to session highs after the release of the PMI report. Currently, the U.S. Dollar Index is trying to settle above the 105 level.

For a look at all of today’s economic events, check out our economic calendar.