But... The ISM Services Index Misses Expectations

August’s ISM services index (non-manufacturing) came in at 51.5 vs. 53 expected, and 54.3 in July. This implies continued growth, but barely so. (Values above 50 equate to industry expansion, below 50 equate to contraction.)

Key take-aways:

  • The Employment component of the index flipped from growth to contraction.
  • New Export Orders also flipped from growth to contraction.
  • Imports flipped from contraction… to growth.

ISM:

“The NMI (Non-Manufacturing Index) registered 51.5 per cent in August, 2.8 percentage points lower than the 54.3 per cent registered in July, indicating continued growth in the non-manufacturing sector but at a slower rate. The Non-Manufacturing Business Activity Index decreased 3 percentage points to 54.4 per cent, reflecting growth for the ninth consecutive month, but at a slower rate than in July. The New Orders Index decreased 4.3 percentage points to 52.4 per cent, and the Employment Index decreased 2.7 percentage points to 48.2 per cent, reflecting contraction after one month of growth. The Prices Index increased 7.6 percentage points to 60.3 per cent in August, indicating that prices increased significantly in July. According to the NMI, nine non-manufacturing industries reported growth in August. Respondents’ comments continue to be mixed about business conditions and the state of the overall economy.”

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There’s been a general slow-down in expansion since March when the index was 55.4.

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Looking closer at the Employment Component, it had never been that great, even in previous months, but it’s back to a level of contraction, at 48.2:

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ISM:

Employment
Employment activity in the non-manufacturing sector contracted in August after growing in July. July represented the second time in the past four months, and only the second time since December 2007, that the index has expanded. ISM’s Non-Manufacturing Employment Index for August registered 48.2 per cent. This reflects a decrease of 2.7 percentage points when compared to the 50.9 per cent registered in July. Three industries reported increased employment, 10 industries reported decreased employment, and five industries reported unchanged employment compared to July. Comments from respondents include: “Planned downsizing due to changing business model” and “Holding the line on no new hires.”

The industries reporting an increase in employment in August are: Arts, Entertainment & Recreation; Finance & Insurance; and Information. The industries reporting a reduction in employment in August — listed in order — are: Mining; Accommodation & Food Services; Health Care & Social Assistance; Utilities; Retail Trade; Professional, Scientific & Technical Services; Public Administration; Educational Services; Transportation & Warehousing; and Wholesale Trade.

We obviously still need improvement here.

Given that the ISM manufacturing index beat expectations earlier this week, manufacturing continues to rebound in a better fashion than services during this recovery.

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