The Independent Market Observer

Monday Update: Service Sector Down, Remains Healthy

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Jun 12, 2017 1:08:13 PM

and tagged In the News

Leave a comment

Monday updateLast week was quite slow from an economic news standpoint, but things will pick up in the week ahead.

Last week’s data

The only report of significance last week was released on Monday: the ISM Non-Manufacturing Index, which covers business sentiment in all areas except manufacturing. This is a diffusion index, with values above 50 indicating expansion. The number came in slightly below expectations, at 56.9 versus 57.1, which was also down from a very positive 57.5 in April. The drop was due in large part to a decline in the new orders index, which had been at a 12-year high and still remains at a strong level. Also on the positive side, there was an increase in the employment index. Plus, the number of industries reporting growth rose to 16, the most in three years. Despite the overall small decline, then, the data still signals healthy growth, although at a slightly slower rate.

What to look forward to

After a slow week, the data flow heats up this week. First, on Wednesday, are consumer prices. Headline prices, which include food and energy, are expected to remain flat for May, down from a 0.2-percent increase in April, due to lower gasoline prices. On an annual basis, headline prices are expected to show an increase of 2 percent, down from the previous figure of 2.2 percent. Core consumer prices, however, are expected to rise by 0.2 percent for May, better than the 0.1-percent increase in April. The annual increase should remain stable at 1.9 percent. These numbers are still in line with what the Federal Reserve would like to see and probably won’t cause a delay in this week’s expected interest rate increase.

Another Wednesday report, retail sales are expected to show a similar pattern. Headline sales, which include automobiles, are expected to increase 0.1 percent in May, down from a 0.4-percent rise in April, due to slower vehicle sales and the drop in gas prices. Core sales, which exclude autos, are expected to show a smaller decline—coming in at 0.2-percent growth versus 0.3-percent growth in April. These numbers suggest consumers continue to feel positive about the economy.

Also on Wednesday, the Federal Open Market Committee will finish its regular meeting. Markets expect another rate increase and will also be looking for any hints on whether the Fed plans more increases this year. In addition, markets will look for details about how and when the Fed plans to start shrinking the balance sheet.

Thursday’s Industrial Production report is expected to show a slowdown—from a 1-percent gain in April to just a 0.1-percent increase in May. This would reflect continuing but slower growth in oil and gas production. Manufacturing growth is also expected to slow, from 1 percent in April to 0.2 percent in May. This slowdown is reasonable after April’s surge.

Also on Thursday, the National Association of Home Builders survey is expected to show a strong result for June: 70, the same as for May. Supporting this, housing starts are expected to rise from 1.172 million in April to 1.223 million in May. There may be downside risk to this number, though, on weakness in last month’s building permits. Even if housing development slows somewhat, continued strong demand supports the industry confidence figures.

Finally, to close the week, the University of Michigan Consumer Confidence Survey is expected to remain steady at 97.1, close to its highest level in more than a decade. High confidence, as noted above, is driving retail sales and spending growth, which should help the economy as a whole.

Have a great week!

  Subscribe to the Independent Market Observer

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®