ISM non-manufacturing index is up slightly in August

The index ISM uses to measure non-manufacturing growth—known as the NMI—was 53.7 in August, up 1.1 percent from July and slightly below the 12-month average of 53.9. A reading above 50 represents growth. With the August NMI remaining above 50, economic activity in the non-manufacturing sector has grown for the last 32 months, according to ISM. The PMI, the index on which the ISM’s Manufacturing Report on Business is based, dropped 0.2 percent to 49.6 in August, marking the third consecutive month is had been below 50.

The report’s four core metrics were mixed on a sequential basis in August. Business Activity/Production was down 1.6 percent at 55.6, and New Orders were down 0.6 percent at 54.3. Employment was up 4.5 percent at 53.8.

“It was pleasantly surprising to see the Employment index where it was in August,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “Overall, even with a bit of a dip in the rate of growth for New Orders and Business Activity/Production, the NMI came in pretty good, especially when compared to the Manufacturing numbers. It was a very good report.”

When asked about Business Activity/Production falling 1.6 percent, following a 5.5 percent bump from June to July, Nieves explained that much of that activity is driven by what companies know is in the pipeline, in terms of what their expansion plans are.

That was also reflected in the report’s comments submitted by ISM member companies. One respondent in the professional, scientific, and technical services sector noted the economy is still stagnant although he expected to see some capital spending improvement in the fourth quarter. And a retail trade correspondent said that overall conditions continue to be unpredictable, with sales inconsistent as customers reel to the news of the day, which creates havoc on the supply chain to respond.

“One thing I am wary about is the fact that manufacturing is down,” said Nieves. “Even though they are mutually exclusive, there is some overlap with non-manufacturing companies being customers of manufacturers. But even with that the manufacturing numbers are not that far off of 50 and the manufacturing Employment number is still good at 51.6 for August.”

Prices in August moved up 9.4 percent to 64.3, driven in large part by a surge in petroleum-based products.

Inventories dipped 2.0 percent to 52.5, and Supplier Deliveries moved up 2.0 percent to 51.5. Supplier Deliveries were up 2.0 percent to 51.5

“Supplier Deliveries are really indicative of what is going on,” said Nieves. “Last month, it was not as reflective as it was more of a burn off of inventory, which is why deliveries were faster. By burning off that inventory a bit, that current rate of inventory growth has slowed down. That is what impacted deliveries to get that number to where it should have been, which is slower. This led me to believe there was some excess inventory in the pipeline.”