June 5, 2016

May 2016 ISM Non-Manufacturing Index: 52.9 Percent, Sharply Down From 55.7 Percent in April

Filed under: Economy — Tom @ 3:44 pm

Didn’t have a chance to get to this in light of Friday’s awful jobs news and other commitments. The May 2016 ISM Non-Manufacturing Index was also a downer, though it’s still showing expansion (bolds are mine; some paragraphs breaks added by me):

Economic activity in the non-manufacturing sector grew in May for the 76th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The NMI® registered 52.9 percent in May, 2.8 percentage points lower than the April reading of 55.7 percent. This represents continued growth in the non-manufacturing sector at a slower rate.

The Non-Manufacturing Business Activity Index decreased to 55.1 percent, 3.7 percentage points lower than the April reading of 58.8 percent, reflecting growth for the 82nd consecutive month, at a slower rate in May. The New Orders Index registered 54.2 percent, 5.7 percentage points lower than the reading of 59.9 percent in April.

The Employment Index decreased 3.3 percentage points to 49.7 percent from the April reading of 53 percent and indicates contraction after two consecutive months of growth. The Prices Index increased 2.2 percentage points from the April reading of 53.4 percent to 55.6 percent, indicating prices increased in May for the second consecutive month.

According to the NMI®, 14 non-manufacturing industries reported growth in May. Respondents’ comments are mixed and vary by industry and company. Overall, the report reflects a cooling-off and slowing in momentum from the previous months of growth for the non-manufacturing sector.


The 14 non-manufacturing industries reporting growth in May — listed in order — are: Health Care & Social Assistance; Accommodation & Food Services; Utilities; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Construction; Public Administration; Real Estate, Rental & Leasing; Management of Companies & Support Services; Information; Finance & Insurance; Retail Trade; Transportation & Warehousing; and Arts, Entertainment & Recreation. The four industries reporting contraction in May are: Mining; Other Services; Educational Services; and Professional, Scientific & Technical Services.


  • “Outlook remains strong, with steady pricing, strong demand, and new expansion in the pipeline.” (Accommodation & Food Services)
  • “Projects from the oil companies are becoming less and less. Budget problems for capital projects.” (Construction)
  • “There has been a general slowing-down from the momentum we saw last month.” (Professional, Scientific & Technical Services)
  • “Slower start to the second quarter.” (Arts, Entertainment & Recreation)
  • “Holding steady. No real increase, but expansion plans on for late Q3 or Q4 in preparation for 2017.” (Finance & Insurance)
  • “Continued growth in the sector.” (Transportation & Warehousing)
  • “Pending labor concerns to replace an aging workforce of highly-skilled staff support positions.” (Educational Services)
  • “High pressure on cost reduction due to declining top line sales.” (Retail Trade)
  • “Significant drop in shipments for the month. Estimate a decline of nine percent for the markets we serve. Overall retail traffic has slowed. Pricing has stabilized in the market.” (Wholesale Trade)

Note that the comments were mostly negative.

The falls in Business Activity and New Orders were from high-50s levels that were hard to believe in the first place. Backlog of Orders dropped from 51.5 percent to breakeven (50.0 percent). There was also a big drop in New Export Orders into slightly negative territory (from 56.5 percent to 49.0 percent), which seems particularly troubling.

According to aggregate tracked by Markit and referenced at Zero Hedge, second-quarter GDP growth is looking like it will also be below 1 percent — “PMI surveys point to GDP growing at an annualised rate of just 0.7-0.8% in the second quarter, notwithstanding any marked change in June.”


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