July 3, 2013

June ISM Non Manufacturing: 52.2%, Down from 53.7% in May and Missing Expectations of 54.2% (UPDATE: Combined Index Lowest in Almost 3-1/2 Years)

Filed under: Economy — Tom @ 10:09 am

Predictions are for a reading of 54.4% vs. 53.7% in May.

Here’s the Institute for Supply Management’s report — and we have a pretty big “oops” (bolds and most paragraph breaks added by me):

Economic activity in the non-manufacturing sector grew in June for the 42nd consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The NMI™ registered 52.2 percent in June, 1.5 percentage points lower than the 53.7 percent registered in May. This indicates continued growth at a slightly slower rate in the non-manufacturing sector.

The Non-Manufacturing Business Activity Index registered 51.7 percent, which is 4.8 percentage points lower than the 56.5 percent reported in May, reflecting growth for the 47th consecutive month.

The New Orders Index decreased by 5.2 percentage points to 50.8 percent, and the Employment Index increased 4.6 percentage points to 54.7 percent, indicating growth in employment for the 11th consecutive month.

The Prices Index increased 1.4 percentage points to 52.5 percent, indicating prices increased at a faster rate in June when compared to May. According to the NMI™, 14 non-manufacturing industries reported growth in June. (out of 18 — Ed.)

Respondents’ comments are mixed about business conditions depending upon the industry and company. The majority indicate that growth has been slow and incremental; however, it is still better year over year.

The key GDP-driving components all stayed above the 50% expansion cutoff, but 2 of the 3 fell significantly:
- Business activity/Prodcution — 51.7, down from 56.5
- New Orders — 50.8, down from 56.0
- Backlog of Orders — 52.0, up from 51.5

I suspect that the weighted combined indices are at the lowest level in quite a while, and am looking into that right now.

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UPDATE: The NMI itself is the lowest level since the 51.7% in February 2010.

At 52.04, the combined index — weighted 12% for manufacturing and 88% for non-manufacturing, which was the relationship several years ago (I’ll check on that shortly to see if it’s changed at all) is the lowest since 50.97 seen in January 2010 (Feb. 2010 was 52.18):

ISMconsolidatedIndixJune09toJune13

With the caveat that the indices are of sentiment and don’t represent “hard” economic data, it looks like Recovery Summer, at least in any meaningful sense from the vantage point of purchasing managers, has been cancelled for the fourth year in a row.

UPDATE 2: Additional observations from Zero Hedge

The New Order components was absolutely destroyed printing at 50.8, down from 56.0, and the lowest since July 2009. Furthermore, Business Activity tumbled from 56.5 to 51.7, far below consensus of 56.8, and the lowest since November 2009. The only good indicator on the face of this absolute devastation was the Employment index which mysteriously rose by 4.6 to 54.7, the highest since February: those part-time jobs must sure be accretive to businesses.

UPDATE 3: Manufacturing is 11.9% of GDP, according to the National Association of Manufacturers. I’m not going to change the chart above for 0.1%, but I will note that it changes the two comparison points above to 50.96 and 52.05, respectively, and it leaves the “worst in 41 months” claim intact. A gentleman I spoke with at ISM agrees that it’s conceptually accurate to include everything else, including the government’s portion of GDP, as part of “Non-Manufacturing.”

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3 Comments

  1. Very minor criticism here, regarding charts. Since “50″ is a magic significant number, i.e., the demarcation between growth and contraction, it would be illustrative to have a line showing “50″ on your chart. I’ll tally this as probably the only time you will do something I criticize.

    Comment by GW — July 3, 2013 @ 2:44 pm

  2. #1, Ask and you shall receive (in words at least).

    Comment by Tom — July 3, 2013 @ 3:55 pm

  3. [...] I noted earlier today at my home blog: “… it looks like Recovery Summer, at least in any meaningful sense from the vantage [...]

    Pingback by BizzyBlog — July 3, 2013 @ 6:37 pm

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