ISM Non-manufacturing index is up slightly in July

In its Non-Manufacturing Report on Business, the Institute for Supply Management reported today that non-manufacturing activity in July increased slightly from June.

The index ISM uses to measure non-manufacturing growth—known as the NMI—was 52.6 in July, up 0.5 percent from June and down from May’s 53.7. As the NMI showed growth, its companion index in the ISM’s monthly Manufacturing Report on Business saw a 0.1 percent gain in its index—known as the PMI—to 49.8. A reading above 50 represents growth. And with the June NMI remaining above 50, economic activity in the non-manufacturing sector has grown for the last 31 months, according to ISM.

The report’s four core metrics were mixed on a sequential basis in July. Business Activity/Production was up 5.5 percent at 57.2, and New Orders were up 1.0 percent at 54.3. Employment was down 3 percent at 49.3.

“It was a nice surprise to see the NMI come in stronger month-over-month,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “Business Activity really looks strong and was not anticipated by too many people, especially when New Orders in June were at 53.3, which did not transpose into strong business activity the following month. It took us by surprise a little bit.”

The most “alarming” portion of the report, according to Nieves, was the decline in Employment.

He explained that it was indicative of what the perception—or psyche—is in the non-manufacturing sector of companies when they pull back on hiring, coupled with feelings of negativity by many regarding the economic outlook.

“It is all about the confidence level…which has been waning in the last few months based on what we have been seeing and hearing,” he said.

Supplier Deliveries in July were down 1.5 percent to 49.5, and Inventories moved up 1.5 percent to 54.5.

The slowing in deliveries spurred the inventory build up being seen in the data, according to Nieves.

Prices jumped 6.0 percent in July to 54.9. Nieves said this can be attributed to gains in different things like airfares, textile products, and petroleum-related products, which tend to have an “up and down” nature.

“It is a timing issue,” he said. “And at the end of the day price increases for oil and gas impact non-manufacturing which relies on trucking and has many remote locations.”

In looking at the economic outlook for the non-manufacturing sector, Nieves explained that the summer months tend to be slower for the sector and then picks up again in mid-September.

The current uncertain economic environment, he said, has created a faltering in confidence, and even though the ISM data is showing gradual growth, the uncertainty is still prevalent and is reflected in the sluggish employment numbers.