July non-manufacturing data sees slight decline but remains solid over all

Non-manufacturing activity in July remained on solid footing, according to the most recent edition of the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business.

The index ISM uses to measure non-manufacturing growth—known as the NMI—was 55.5 in July (a level of 50 or higher indicates growth), which was 1 percent below June’s 56.5. Economic activity in the non-manufacturing sector has grown for 78 months, and the July NMI is 0.1 percent below the 12-month average of 56.5. 

Two of the report’s four key metrics, including the NMI, saw growth in July. Business activity/production was off 0.2 percent at 59.3 while still showing growth for the 84th straight month, and new orders headed up 0.4 percent to 60.3, also up for the 84th straight month. Employment dipped 1.3 percent to 51.4 but still grew for the second consecutive month.

ISM reported that 15 non-manufacturing industries reporting growth in July, including: Arts, Entertainment & Recreation; Educational Services; Accommodation & Food Services; Real Estate, Rental & Leasing; Retail Trade; Utilities; Health Care & Social Assistance; Public Administration; Finance & Insurance; Management of Companies & Support Services; Transportation & Warehousing; Wholesale Trade; Construction; Information; and Professional, Scientific & Technical Services. The three industries reporting contraction in July were :Other Services; Agriculture, Forestry, Fishing & Hunting; and Mining.

Comments by ISM member respondents mentioned in the report were mixed. A construction respondent said that lower oil and chemical pricing is affecting the overall business for new projects and capital spending is down. And a management of companies and support services respondent said that seasonally, July was down from June while sales are up for the year, with the respondent’s company tracking closely to a sales forecast calling for strong growth.

Growth in July was viewed as a positive by Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee.

“Back in May, the NMI dropped down to 52.9 from 55.7 in April, and everyone was up in arms,” he said. “And this 55.5 reading tells me June’s 56.5 was not a head fake and therefore we need to see how this trends out for the next three-to-four months. Now, it is on the right track in terms of where this index is.”

Other notable metrics in the report included:
-supplier deliveries down 3.0 percent to 51.0 (above 50 for this metric means it contracted);
-inventories down 1.5 percent to 54.0;
-prices down 3.6 percent to 51.9; and
-backlog of orders up 3.5 percent to 51.0

Nieves said it was surprising capacity has not really been affected because deliveries are still slowing at a slower rate and backlog shifted to growth from contraction but was in the low-50s range, which he said might be higher as employment was down in July.

Looking to the remainder of 2016, things like the Presidential election, consumer confidence and Brexit are top of mind for the sector, as well as global markets activity, too.

“How much these things impact non-manufacturing domestically remains to be seen,” he said. “This sector has been insulated from a lot of what has been going on globally and what gets exported from this sector is less tangible goods and more along the lines of intellectual management, technology, and consulting and things like that. Things are steady and sustainable at this point. We will see how things move into the fall.”