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Non-manufacturing data for June is down slightly but still strong

By Jeff Berman, Group News Editor
July 03, 2014

Non-manufacturing activity continued to remain on a growth track for the month of June, according to the Non-Manufacturing Report on Business from the Institute for Supply Management (ISM), which was released today.

The NMI, the ISM’s index to measure growth, dipped 0.3 percent to 56.0, just down from May’s 56.3, which is the highest level for the PMI since August 2013’s 57.9. A reading above 50 represents growth. The June NMI is 1.3 percent higher than that 12-month average of 54.7 and marks the 53rd consecutive month of growth in the non-manufacturing sector.
 
The report’s four key metrics, including the NMI, were mixed in May. Business Activity/Production was off 4.6 percent at 57.5, and New Orders were up 0.7 percent to 61.2. Employment increased 2.0 percent to 54.4, with growth for employment up for the fourth straight month and at a higher rate. ISM reported that 14 of the 18 industries contributing to the report experienced growth in June, with the lone industry reporting contraction was mining.

“Things look pretty good,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “What caused the slight dip in the NMI was that business activity waned, but it was at such a high level (in May at 62.1) that it was not bad, and the other key indices were strong.”

Nieves said that the solid employment data in the report reflects the varied industries that comprise the non-manufacturing sector. And he noted there will always be some sort of correlation between the ISM’s employment data and data put out by the Department of Labor who reported today that the U.S. employers added 288,000 jobs in June while the unemployment rate dropped 0.2 percent to 6.1 percent, which is the lowest unemployment rate going back to September 2008.

The slow, incremental increase in employment correlates directly to the strain on capacity, due to the high level of non-manufacturing activity occurring in recent month, Nieves observed.

June supplier deliveries were up 1.0 percent at 51.0, and inventories dropped 2.0 percent to 53.5.

“For inventories, there is still a month over month increase but it is not as fast a rate, which has to do with the large upticks we have had in business activity and also what we are seeing in terms of inventory burn off, which cannot be replenished as fast is what I suspect,” he said. “On the delivery side, the orders are being fulfilled but still slowing slightly. It has a lot to do, though, with inventory burn off and available capacity at a specific time. It will be interesting to see if we have these same levels in July and August, as we historically see a bit of a slowdown in the summer months due to vacations.”

Looking ahead, Nieves said a watchful eye needs to be kept on both new orders and employment. Both these metrics will be truly indicative of where the sector is going, he explained.

As long as new orders remains at a sustainable level, that will bode well for the pipeline although it may strain capacity a bit, he said. But it will likely lead to more jobs, which will lead to more consumer confidence and have a strong impact on the non-manufacturing sector.
 

About the Author

Jeff Berman headshot
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. .(JavaScript must be enabled to view this email address).


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