US Non-Manufacturing ISM: A soft reading, not adding to the case of a Sep rate hike - ING

Rob Carnell, Chief International Economist at ING, affirms that after the recent non-manufacturing report and last week employment data, they don’t see a compelling case for a September rate hike from the Federal Reserve.

Key Quotes:

“The run of recent data does not back recent chatter about a September hike. We are sticking to 1Q17 for the next hike, though upcoming inflation data will be important.”

“We don't usually pay too much attention to the non-manufacturing ISM when it is released after the labour market report, but the decline in new orders by almost 9 points is eye-catching and may even give the Fed pause for thought as we gear up for a slew of Fed speakers in coming days. Business activity itself was not much better, falling from 59.3 to only 51.8, and new export orders also fell into contraction territory. The employment index fell slightly, but does not tell us anything we did not already know following the August labour market report.”

“There have been some renewed market murmurings about a September rate hike from the Fed in recent days. But with data like this and the neutral labour market report last week, we do not see a compelling case for a September rate hike. This could be improved by some better inflation data due out on September 16 - days before the Fed's meetings. That said, the prices paid index of this ISM index does not indicate any likelihood that this is going to happen in time for the September meeting.”