ISM December services PMI 62.0 versus 66.9 expected

• prior month 69.1 (record high)
• new orders 61.5 versus 65.0 estimate. Last month 69.7
• employment index 54.9 versus 54.1 estimate. Last month 56.5
• prices paid 82.5 versus 83.6 estimate. Last month 82.3
• business activity 67.6 versus 71.0 expected (prior 74.6)
• supplier deliveries 63.9 versus 75.7 last month
• backlog of orders 62.3 versus 65.9 last month
• new export orders of 61.5 versus 57.9 last month
• imports 55.5 versus 50.5 last month
• inventory sentiment 38.3 versus 36.4 last month
• Full report

Comments in the report:

• “Supply chain challenges to procure supplies for our restaurants
  remains our greatest obstacle at present, along with staffing needs. We
  are considering another price increase after just one in 2021, in
  August.” [Accommodation & Food Services]
• “Supply chain issues continue, but our business is adapting.” [Agriculture, Forestry, Fishing & Hunting]
• “The escalation in costs for materials, fuel, labor, lodging and the
  like continues to negatively impact margins in an unsustainable
  direction.” [Construction]
• “Higher than normal employee attrition within our own company and at
  our suppliers, which is causing disruptions and delays.” [Finance &
  Insurance]
• “There is widespread fatigue across the organization as COVID-19
  hospitalizations have plateaued, but in the face of yet another variant
  (omicron), the winter forecast is not positive. Although
  hospitalizations have eased, demand for services is up, as is acuity of
  patients. Due to mainly logistical concerns, the supply chain remains
  turbulent and some supply shortages, including of Vacutainers, are
  hindering operations. Our organization is cautiously optimistic going
  into flu season.” [Health Care & Social Assistance]
• “Most upstream production materials are being pressured by
  constrained supply chains as well as domestic transportation challenges.
  Vendors are trying not to pass on expenses, but their margins are such
  that they will need to raise prices. While we have done a good job
  holding prices down, we will not be able to hold the vendors at bay. All
  (cost of goods) will be impacted.” [Information]
• “Activity continues to maintain a steady pace. Inventory levels and
  outages are persistent with our suppliers; however, starting to see some
  relief in the supply chain, but not below the critical point yet.
  Prices continue to be driven up, with shipping costs the largest driver
  due to inflated pressures on capacity and fuel costs.” [Other Services]
• “Electronic chip (shortage) is severely affecting deliveries from
  our supply base, thus impacting our ability to deliver to customers.”
  [Professional, Scientific & Technical Services]
• “Long lead times, transportation bottlenecks, delivery inconsistency
  and price increases continue to affect a range of products.” [Retail
  Trade]
• “We continue to experience supply chain disruptions across the
  nation and around the globe, resulting in raw material and subcomponent
  shortages, longer manufacturer lead times, transportation resource
  constraints, labor pool issues and significant price increases. Supply
  management continues to recommend pulling in demand, placing orders
  earlier than historical lead times for long lead-time materials, and
  qualifying secondary sources of supply (if applicable).” [Utilities]
• “Demand is good, but supply chain issues continue to get worse.
  Trucking availability is worsening. Labor shortages are causing issues.
  We could do much more business if we had more people and access to more
  products.” [Wholesale Trade]

I suspected we would get a downside miss in this report — the consensus was far too optimistic given omicron — and now we’re seeing downside in risk assets.

“The prior ISM services reading of 69.1 is unsustainably high and the
consensus only sees a dip to 66.9. I’ll take the under. That’s the kind
of thing that could kick off more risk aversion.”

In FX, commodity currencies have quickly given back the latest bounces and the yen is broadly stronger.