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US Economy Weakened in February - Weather Impact on ISM Services?

US Economy Weakened in February - Weather Impact on ISM Services?

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- ISM Services remains below trailing 12-month average (54.3) at 51.6.

- Employment subindex drop suggests NFP growth to disappoint.

- US yields fall, weighing on US Dollar after data.

The ADP private sector reading of jobs growth in February came in lower than expectations at +139K versus +155K expected, and a weaker than anticipated ISM Services report has upped the ante on another disappointing NFP report this Friday. The headline sentiment gauge dropped back to 51.6, its lowest reading since early 2010.

Notably, the ISM Services Employment subindex fell to 47.5 in February, its first reading below 50 (neutral) since December 2011 (49.0). Since 2001, there have been 16 occurrences (out of 158 months) when the Employment subindex has registered between 46.5 and 48.5. The average NFP in the corresponding month was -75.7K (standard deviation of 113.6K).

In context of these figures, we expect that the February NFP report is likely to disappoint. A negative print seems far-fetched given the ADP figure but a reading below the current consensus of +150K seems likely.

Here’s the data hurting the US Dollar:

- ISM Services (FEB): 51.6 versus 53.5 expected, from 54.0.- ISM Employment (FEB): 47.5 from 56.4.

EURUSD 1-minute Chart: March 5, 2014

US_Economy_Weakened_in_February_Weather_Impact_on_ISM_Services_body_x0000_i1027.png, US Economy Weakened in February - Weather Impact on ISM Services?

Charts Created using Marketscopeprepared by Christopher Vecchio

With headline US economic data coming in weaker than anticipated, US Treasury yields slipped, leading to a weaker US Dollar. The US Treasury 10-year note yield decreased from 2.713% ahead of the release to as low as 2.682%; the yield was trading at its daily low at the time this report was written.

Following the data (released slightly early at 09:56 EST), the US Dollar slipped across the board, with the USDJPY falling back from its session highs near ¥102.50 and the EURUSD rebounding further from its lows above $1.3700 (set this morning after seemingly mixed Euro-Zone growth and PMI data).

The EURUSD rallied from 1.3717 ahead of the release to as high as 1.3748, and was trading at 1.3742 at the time this report was written.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail

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