ISM says non-manufacturing activity in June is still seeing growth

Non-manufacturing activity took a dip in June but remained in growth territory, according to the June edition of the Institute of Supply Management’s (ISM) Non-Manufacturing Report on Business.

ISM said that the index used to measure non-manufacturing growth—known as the NMI—was 52.2 in May, down 1.5 percent from May. June’s PMI is 2.2 percent below the 12-month average of 54.4. Non-manufacturing activity increased for the 42nd consecutive month in June, said ISM.

A reading above 50 represents growth. Earlier this week, the ISM reported that the PMI, the index on which the ISM’s Manufacturing Report on Business is based on, increased 1.9 percent to 50.9 in June. This is below the 12-month average of 51.2.

Including the PMI, three of the report’s four key metrics were up in June. Business Activity/Production shrunk 4.8 percent increase to 51.7, and New Orders were down 5.2 percent at 50.8. Employment was the lone core metric showing growth, up 4.6 percent to 54.7.

“There is still growth here month-over-month, even though the rate slowed down,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “The decline in New Orders does not mean they are not growing; it just means the rate is slower.”

At the mid-year point, Nieves said non-manufacturing remains in a slow-growth, incremental phase, while Employment had room for improvement. But that could be changing as evidenced by today’s report from Reuters that the ADP National Employment Report said U.S. companies added 188,000 jobs in June, exceeding median forecast of 160,000 among economists polled by Reuters and was higher than a slightly downgraded 134,000 increase in May.

Nieves said type of job growth could translate into better things in the future, due to the fact that more people at work equates into increased consumer confidence, which can help to spur retail sales and other economic activity.

Business/Activity and Production’s reading of 51.7 was its lowest monthly reading since November 2009, when it was at 50.9.

“There was a decline, but this is a moving baseline,” said Nieves. “The decline in growth percentage is not reflective of the rate. It has more to do with speed and timing and not necessarily total output and volume if we were to compare it to something numerical, which is hard to due because of the fluctuation from month-to-month.”

June Inventories and Prices were up 3.0 percent and 1.4 percent, respectively.

Nieves said there was such a concentrated effort on reducing inventory for a longer period of time that when orders and business activity went up, the inventory was not there.

“Our respondents’ comments indicated they had to build up inventory, because they did not have the capacity to handle what was coming in,” he said. “That is why we are seeing deliveries slow down slightly and backlog has grown a little bit.

Prices were up for the 45th straight month, with Nieves explaining the gains have largely been driven by petroleum and oil-based products with little actual pricing power otherwise evident.