Kit Juckes, Research Analyst at Societe Generale, suggests that yesterday’s strong US non-manufacturing ISM release (55.7 after 54.4 last month) dragged the composite index back up for a third month in a row.

Key Quotes

“The picture looks familiar – a falling ISM at the start of the year heralding soft Q1 GDP, and a bounce as soon as spring turned up. GDP growth has averaged 2.1% for the last 5 years, and can go on doing that until it runs out of spare labour.

Productivity has fallen for the last two quarters, boosting unit labour costs and causing concern about the profit cycle, but that isn’t likely to de-rail the ‘recovery’ unless/until wage growth accelerates significantly and the Fed tightens a fair bit more.

On we move to tomorrow’s payroll data, where the soft ADP print yesterday preps the market for a potentially weak figure though I’d note firstly the poor correlation between ADP and the first release of NFP and secondly the fact that a 156k increase was in any case within one standard deviation of the recent average increase. In other words, it tells us very little.”