June non-manufacturing output has another strong month, reports ISM

Non-manufacturing output had another strong month in June, according to data issued in the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business, which was issued today.

The index ISM uses to measure non-manufacturing growth—known as the NMI—rose 0.5% to 57.4 in June, which is its highest level since February 2015 and growing for the 90th consecutive month. June’s NMI is 1.4% above the 12-month average of 56.0.

Including the PMI, most of the report’s core metrics saw gains in June.

Business activity/production saw a slight 0.1% gain to 60.8, growing for the 95th consecutive month, while new orders were up 2.8% to 60.5 and still growing for the 95th straight month. Employment fell 2.0% to 55.8, but still showing growth for the 40th consecutive month. ISM said that 16 of 18 sectors reported growth in June.

ISM member comments included in the report were mostly positive but not without some concerns.

A Professional, Scientific & Technical Services  respondent pointed to: “General overall optimism in economy. Still job growth issues with mismatch in available labor pool and jobs available.” And a Health Care & Social Assistance said, “We continue to struggle with the unknowns surrounding Obamacare, whether it will be repealed, or replaced, and if replaced what does it mean for our health services business, as well as our health plans business.”

Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, said in an interview that the report was very strong, as was the performance of its manufacturing counterpart that was released earlier this week.

“My feeling is that July and August are kind of transitional and pivotal months to ascertain how strong this sector will finish as we get into the third and fourth quarters of this year,” he said. “The only uncertainty is surrounding what is going to happen with healthcare and social systems, which seem to be on the radar screen of the administration in terms of where things go from here and how it affects people. Those are kind of the unanswered questions.”

Looking at employment, Nieves said he is curious to see how things go over this summer, as there is usually a bit of waning during that period, due to holiday and vacation time, given that May employment was stronger and helped drive the NMI, coupled with the June jobs report being released tomorrow.

What’s more, he added there remains a labor shortage for skilled construction workers and temporary laborers, with over all labor cost being up, too.

Another area to keep a close eye on, he said, was prices, with June prices up 2.9% to 52.1. Fuel prices were reported both up and down by ISM members, due to timing issues and hedging, coupled with food commodity prices, which are supply and demand driven, fluctuating.

Trade policy in regards to what happens with pending free trade agreements and how they may affect imports and exports also bear watching, he said.

Looking at the first six months of 2016, Nieves said the current state of non-manufacturing has exceeded expectations going back to the ISM’s Semi-annual report issued in May.

“We had some business revenue increase projected, and we had various things projected like capital investment,” he said. “But we were not projecting such strong growth in business year over year. What is happening here is stronger.”