ISM non-manufacturing data is down from May but up for 19th straight month

With the economic recovery stalled out to a large degree, the latest results of the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business were not entirely surprising.

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The ISM’s index for measuring the sector’s overall health—known as the NMI—was 53.3 in June, 1.3 percentage points lower than May’s 54.6.  A reading above 50 represents growth. Even with the sequential decline in the NMI the report showed growth in the non-manufacturing sector for the 19th consecutive month.

The NMI’s total reading is largely based on four core metrics. In June, two of the four were ahead of May’s levels, with Business Activity/Production down 0.2 percent at 53.4, New Orders down 3.2 percent at 53.6, and Employment up 0.1 percent to 54.1.

“We are still experiencing growth but at a slightly slower rate,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “It is interesting that we are seeing a little bit of a dip in New Orders. And even though the indices are seasonally-adjusted we have historically seen the non-manufacturing sector always slow a bit as we get into the summer months, with vacations occurring and overall activity waning a bit. This is the common trend that we see every year.”

Nieves also noted that Supplier Deliveries—down 2.0 percent at 52.0—are declining at a slower rate and Inventories—down 1.5 percent at 53.5—are also trending down. Prices were down 8.7 percent to 60.9, which is more normal, he explained.

Some ISM survey respondents said that pricing is coming down and stabilizing and Nieves said it also has to do with product availability and not having as short of supply as there was in the past, especially as it relates to things like textiles and some other commodities. Fuel and energy also serve as big drivers on the pricing side, too.

“Compared to last month, things are slightly down but still growing, and things still seem to be on a path of slow and sustainable growth,” said Nieves. “Next month’s report will be pivotal in that it will give us an indication of where the rest of the summer months are. We typically see a slight uptick in the fall but looking at this economy and this sector, I think we will likely go sideways or grow slowly and won’t see any real traction or strong uptick until 2012.”

The key to meaningful growth or recovery, said Nieves, is growth in employment numbers. But more capital investment is needed, too, he said. The ISM’s Semiannual Forecast exemplified this, with 2011 non-manufacturing capital investment expected to increase by only 1.4 percent. This is due in part to consumer confidence not needing where it needs to be and subsequently slowing down employment growth.

 


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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