US ISM disappoints on growth, but some signs of pipeline price pressures - ING

"The ISM non-manufacturing index fell more than anticipated, suggesting a slowing in service sector activity, but there is some evidence of a pick-up in inflation pressures within the sector," notes James Knightley, Chief International Economist at ING.

Key quotes: 

"The July reading for the ISM non-manufacturing index is disappointing with the headline index falling to 53.9 from 57.4, which is well below the 56.9 consensus forecast. New orders and business activity both fell five points and are around 4 points below their 6M moving average so it is quite a pronounced slowdown. However, we have to remember that the ISM indices have both been recently running at levels historically consistent with 4%+ GDP growth. Today's move merely brings them back into line with the story told by the official activity data rather than pointing to something more ominous."

"In terms of tomorrow's payrolls report the ISM employment component came in at 53.6 versus 55.8 in June after the manufacturing index fell 2 points to 55.2 earlier in the week. This seems to support our view that payrolls could disappoint a little tomorrow (ING= 170, consensus = 180 versus the 222k figure last month), but it will be the wage number that will be key for Fed rate hike expectations. Note also that the prices paid component rose (as did the manufacturing equivalent) so there is some evidence of pipeline prices pressures perhaps starting to emerge."