July non-manufacturing activity is impressive, reports ISM
August 05, 2014
Non-manufacturing activity saw strong increases across the board for the month of July, while hitting some new highs for certain metrics, according to the Non-Manufacturing Report on Business released by the Institute for Supply Management (ISM) today.
The NMI, the ISM’s index to measure growth, increased 2.7 percent to 58.7, which is its highest level since its inception in January 2008. A reading above 50 represents growth. The July NMI is 3.7 percent higher than that 12-month average of 55.0 and marks the 54th consecutive month of growth in the non-manufacturing sector.
The report’s four key metrics, including the NMI, all showed gains in July. Business Activity/Production was up 4.9 percent at 62.4, and New Orders were up 3.7 percent to 64.9 for its highest reading since August 2005, when it checked in at 65.3. Employment moved up 1.6 percent to 56.0, with growth for employment up for the fifth straight month and at a higher rate. ISM reported that 16 of the 17 industries contributing to the report experienced growth in July, with the only industry reporting contraction was utilities.
“Employment is usually the laggard in the NMI, but across the board there is such high business activity, especially with new orders,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “Our respondents are on the front lines in seeing what their respective companies are doing so it is a good mix overall, and I think the continued growth in employment is what drove July’s performance even with other areas showing gains. Employment was not a laggard at all.”
Respondent comments showed a largely positive outlook for the non-manufacturing sector, with a wholesale trade respondent pointing to business being strong this summer after a late start due to the poor spring weather. And an information services respondent cited how the second half of the year is looking promising for increased orders compared to last year.”
Supplier deliveries in July were up 0.5 percent to 51.5, with a reading above 50 indicating slower deliveries, and inventories dipped 2.5 percent to 51.0. Backlog of orders was flat at 53.0. Deliveries would have likely slowed even more, were there not such a significant inventory burn off, said Nieves, taking what was on hand and growing it a little month over month at a decreased rate.
“And with order backlog remaining the same, it means there was enough inventory capacity in the system,” he said. “It will be interesting to see what happens next month in terms of whether there will be some inventory build up because of this. Something needs to give. Inventories are either going to build up or the backlog will increase and deliveries will slow down.”
For new orders, Nieves said that there has been a build up in orders following the fall off due to the harsh winter weather in many parts of the country earlier this year.
“Typically we see this lull in the summer, and I hope it is sustainable,” he said. “This makes the fall months critical as we see how things play out over the rest of the year. We often see a fall off in the summer but, instead, there is a continuous build up going on.”
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