ISM non-manufacturing data shows growth for the 21st straight month

As was the case in July, the August edition of the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business outperformed its sister report focused on manufacturing.

The ISM’s index for measuring the sector’s overall health—known as the NMI—was 53.3 in August, up 0.6 percent from July. A reading above 50 represents growth. The report showed growth in the non-manufacturing sector for the 20th consecutive month.

The August ISM Manufacturing Report on Business, which was released last week, saw a decrease of 0.3 percent to 50.6, marking the second straight sequential decline.

Two of the NMI’s four core metrics were up in August compared to July. Business Activity/Production was down 0.5 percent at 55.6. New Orders were up 1.1 percent at 52.8, and Employment fell 0.9 percent to 51.6.

Upticks in New Orders and Supplier Deliveries—up 2.5 percent to 53.0—are the metrics that drove the NMI up, said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview.

“August was a pivotal month,” said Nieves. “If we were going to lean toward contraction, it would be the month that would give us that indication because even though they are seasonally-adjusted indices slowing tends to historically occur in the summer months. Non-manufacturing has been pretty resilient overall, considering the negativity out there for things like government debt, employment growth, and the global economy.”

Based on the responses from ISM survey respondents, Nieves said the general vibe was that things are OK although there is a fair level of uncertainty at play as well, which is making it hard to determine where business conditions are going for the balance of the year.

That said, he noted that the August report bodes well for growth, and he said that remains the case for September, too.

“Business is holding true to what our respondents told us in our Semiannual forecast,” said Nieves. “That forecast called for slow, incremental growth throughout the year, with the key thing being whether or not it was sustainable. If the August report came in with lower numbers and showed contraction, it would be showing us what everyone else is telling us. We tend to be more forward than most other reports, due to its timing. Our respondents get a good idea of what their companies are doing based on their spend activity.”

This report depicts a more accurate picture of what is going on in the economy based on the fact that there are varied companies and industries that make up non-manufacturing. It makes up more than 80 percent of economic activity.

Nieves likened the results in this report to having a varied stock portfolio, because it is comprised of feedback from 18 varied industries, which reflects many kinds of companies, with some being stronger and weaker than others.

Looking ahead, Nieves said it is possible that the ISM NMI data could finish up the year right around where its current levels are now.

“If anything, I see things getting better and not worse,” he said. “It is my gut feeling. Historically, we also see a little bit of an uptick in the fall and then we get that lull between mid-Fall until holiday shopping time. Non-manufacturing should hold well for the rest of the year, despite the uncertainty our respondents are telling us they are seeing.”