September 6, 2016

August ISM Non-Manufacturing: 51.4 Percent, Sharply Down From 55.5 Percent in July

Filed under: Economy — Tom @ 6:20 pm

From the Institute for Supply Management (bolds and most paragraph breaks added by me):

Economic activity in the non-manufacturing sector grew in August for the 79th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

… The NMI® registered 51.4 percent in August, 4.1 percentage points lower than the July reading of 55.5 percent. This represents continued growth in the non-manufacturing sector at a slower rate.

The Non-Manufacturing Business Activity Index decreased substantially to 51.8 percent, 7.5 percentage points lower than the July reading of 59.3 percent, reflecting growth for the 85th consecutive month, at a notably slower rate in August. The New Orders Index registered 51.4 percent, 8.9 percentage points lower than the reading of 60.3 percent in July.

The Employment Index decreased 0.7 percentage point in August to 50.7 percent from the July reading of 51.4 percent. The Prices Index decreased 0.1 percentage point from the July reading of 51.9 percent to 51.8 percent, indicating prices increased in August for the fifth consecutive month.

According to the NMI®, 11 non-manufacturing industries reported growth in August. The majority of the respondents’ comments indicate that there has been a slowing in the level of business for their respective companies.


The 11 non-manufacturing industries reporting growth in August — listed in order — are: Utilities; Real Estate, Rental & Leasing; Accommodation & Food Services; Finance & Insurance; Educational Services; Health Care & Social Assistance; Public Administration; Management of Companies & Support Services; Professional, Scientific & Technical Services; Information; and Construction. The seven industries reporting contraction in August — listed in order — are: Other Services; Mining; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Wholesale Trade; Retail Trade; and Arts, Entertainment & Recreation.

Though they are still positive (any reading above 50 percent indicates expansion), two of the three key GDP drivers dropped like a rock: Business Activity, 7.5 points; New Orders, 8.9 points (which I believe may be a new record, and if not certainly darned close to it). Backlog of Orders dropped into contraction, going from 51.0 percent to 49.5 percent. Export Orders, which one would think is separate from other New Orders, dropped 9 points from 55.5 percent to 46.5 percent.

I’ve written before that I believe ISM’s reports suffer from positive selection bias. Thus, I believe it’s fair to say that the non-manufacturing portion of the economy is really either flat as a pancake or in slight contraction.


UPDATE: This was the lowest ISM NMI reading since February 2010. If there’s a silver lining, it’s that Markit’s Services PMI, at 50.9 percent, stayed positive. Markit has usually trailed ISM, so the idea that a tiny bit of expansion is still occurring at least remains plausible. Markit believes it’s about 1 percent annualized. That’s quite different from the Atlanta Fed’s current 3.5 percent and Moody’s’s 3.3 percent.


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