ISM Non-Manufacturing Index is up slightly in July

While various economic indices are showing signs of a declining economy, the Institute of Supply Management’s Non-Manufacturing Report on Business for July shows an economy that is still growing.

The ISM’s index for measuring the sector’s overall health—known as the NMI—was 54.3 percent in July, a 0.5 percent gain from June. As is the case with the ISM’s manufacturing index, a reading above 50 percent or higher represents growth. July marks the seventh consecutive month the NMI is more than 50 percent.

Looking at the report’s key metrics, its Business Activity Index at 57.4 percent was down 0.7 percent, and the New Orders Index was up 2.3 percent at 56.7 percent. And the Employment Index at 50.9 percent was up 1.2 percent.

“The report actually exceeded my expectations,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “The rise in employment is encouraging…it is only the second time it has been up since December 2007 [May 2010 hit 50.4 percent]. I thought Business Activity might take a dip, because New Orders were down in June as that usually translates to business activity depending on the cycle time. But now New Orders are up, which should translate into increased activity next month.”

The 0.5 percent gain in the NMI is due to a degree in gains in New Orders and Employment, said Nieves. He added that the overall expectations for July’s report were that the numbers would slip somewhat, which, he said, makes the data surprising to a degree.

The seven consecutive months of the NMI being above 50 percent lends some optimism to the overall economic outlook at a time when many economic indices are slowing down following a strong first half of the year. Recent signs of a slowdown include higher business inventories, lower levels of consumer spending, a slight slowdown in manufacturing activity, and fewer purchases of durable goods, among others. The confluence of good and bad news has led many experts to surmise that what is happening in the economy is a combination of mixed signals and cautious optimism.

“We are hearing that the jobless recovery is still happening,” said Nieves. “And housing is still lagging, too…and if it does not come back we could see a double-dip recession. I am not seeing it yet. If we were to see a strong slippage in manufacturing—which tends to lead going in an out of recessions—then we may see a double-dip, but I don’t see that happening at this point. Hopefully, this data will continue to trend out nicely over the rest of the quarter. Only time will tell.”

The NMI in the summer months can sometimes present misleading data, due to things like vacation schedules, and companies cutting back hours of operation, said Nieves. Data heading into the fourth quarter, he said, can often present a more accurate picture of what is really happening and provide better insight into exactly how the year will end.

Other NMI metrics: The NMI’s Prices index fell 1.1 percent to 52.7 percent and has been trending down for 12 consecutive months. Nieves said prices are declining due to a lack of demand and confidence. What is occurring on this front, he explained, is largely a matter of supply and demand, depending on the service or commodity.

NMI Imports at 48.0 percent were flat compared to June, and New Export Orders at 52.0 percent were up 4.0 percent.