Despite sequential decrease, ISM reports non-manufacturing sector grew in June

Non-manufacturing activity in June was down slightly from May but still at a healthy level overall, according to the June 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
52.1 in June, which was down 1.6 percent compared to May’s 53.7, and fell for the third time in the last four months and expanded at its slowest pace since January 2010.

While the NMI declined, its companion index in the ISM’s monthly Manufacturing Report on Business saw a 3.8 percent drop in its index—known as the PMI—to 49.7. A reading above 50 represents growth. With the June NMI remaining above 50, economic activity in the non-manufacturing sector has grown for the last 30 months, according to ISM.

Three of the report’s four core metrics declined on a sequential basis in June. Business Activity/Production was down 3.9 percent at 51.7, and New Orders were down 2.2 percent at 55.5. Employment was up 1.5 percent at 50.8.

“We are still experiencing growth month-over-month,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “And even with some metrics showing declines, Employment being up was a real bright spot. While we have been growing all year, Employment did not really flow with the other indices—and it has always lagged—so now confidence levels have increased in that area with less attrition. What is happening now bodes well for the non-manufacturing sector.”

Historically, Nieves said the summer months tend to bring with them a slowdown in NMI output, with this year being no exception. The pivotal time has always been in the September-October timeframe, when companies have better visibility into how the year will end up.

Supplier Deliveries were down 2.0 percent to 51.0 in June, and Inventories were down 3.0 percent to 53.0. Backlog of Orders dipped 5.5 percent to 47.5.

“Even though Inventories were down somewhat and supplier deliveries were also down, the lower backlog number may mean that it is taking longer for goods to arrive at their destinations,” he said.

Prices were off only 0.9 percent at 48.9, reflecting the ongoing decrease in petroleum-based products.