August non-manufacturing activity heads up, reports ISM

Coming off a decline from June to July, some ground was made up in August, according to the most recent edition of the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business, which was issued today.

The index ISM uses to measure non-manufacturing growth—known as the NMI—headed up 1.4% to 55.3 (a reading above 50 indicates growth) after falling 3.5% in July off of June’s 57.4, which is its highest level since February 2015. The NMI grew for the 92nd consecutive month, and the August NMI is 0.9% below the 12-month average of 56.2.

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

Including the PMI, each of the report’s core metrics saw gains in August.

Business activity/production increased 1.6% to 57.5, growing for the 97th consecutive month. With a 2.0% increase, new orders hit 57.1, also growing for the 97th consecutive month. And employment was again strong, rising 2.6% to 56.2 and growing for the 42nd month in a row.

Comments submitted to the report by ISM member respondents were largely positive.

“Economy is chugging along. Decent crop yields seem to be offsetting poor commodity prices to some extent. Construction abounds,” noted a finance & insurance respondent. A construction respondent pointed to impressive month over month numbers, with single digit gains in projects and revenues.

Other notable metrics in the report included:
-supplier deliveries dipped 0.5% to 50.5 (a reading above 50 indicates contraction), slowing for the 20th consecutive month;
-inventories fell 3% to 53.5, growing for the fifth straight month;
-prices rose for the third straight month, up 2.2% to 57.9; and
-backlog of orders rose 1.5% to 53.5 and remained on the right side of growth for the seventh straight month

“There was a bit of a rebound or uptick in August based on this data,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “After having such a strong June, there was some concern as the NMI dropped in July, but we are now back to 55.3. This is not as robust as what we saw on the manufacturing side, but it is still a good number. Most of the numbers were up across the board in August, and things are setting up nicely for the tail end of this quarter and heading into the fourth quarter. Most projections are pretty positive.”

Nieves said there has been some impact on the non-manufacturing sector from Tropical Storm Harvey, which has affected fuel prices and likely will for at least a few months. And with Hurricane Irma now making its way up from the Caribbean, he noted the expected impact remains too early to tell at this point.

On a year-to-date basis for the non-manufacturing sector through August, Nieves explained that things are a little bit ahead of what ISM forecasted in its semi-annual report in May.

“I think things have been stronger in the months following the release of that report,” he said. “June was such a strong month, and July was, too even though it tailed off a bit. Things are now popping back up, and I feel it will be a build up, with the anticipation that the fourth quarter will be good, with many of our report’s respondents saying that most of the activity will happen in the latter part of the year. I think we will see this steady and moderate incremental growth that we have had that is typical for non-manufacturing. I don’t think we will see any slip and slide type of activity. That is what the numbers are reflecting.”