ISM: U.S. Non-Manufacturing (PMI) Expanded More Than Expected In August

by Ike Obudulu Posted on September 6th, 2018

U.S. Economic activity in the non-manufacturing sector grew in August for the 103rd consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business.

“The NMI registered 58.5 percent, which is 2.8 percentage points higher than the July reading of 55.7 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased to 60.7 percent, 4.2 percentage points higher than the July reading of 56.5 percent, reflecting growth for the 109th consecutive month, at a faster rate in August.

The New Orders Index registered 60.4 percent, 3.4 percentage points higher than the reading of 57 percent in July. The Employment Index increased 0.6 percentage point in August to 56.7 percent from the July reading of 56.1 percent. The Prices Index decreased by 0.6 percentage point from the July reading of 63.4 percent to 62.8 percent, indicating that prices increased in August for the 30th consecutive month.

According to the NMI®, 16 non-manufacturing industries reported growth. There was a strong rebound for the non-manufacturing sector in August after growth ‘cooled off’ in July. Logistics, tariffs and employment resources continue to have an impact on many of the respective industries. Overall, the respondents remain positive about business conditions and the economy.”

Economists expected the NMI to register at 56.7 percent.

The reading on the main index matched the most optimistic analyst forecasts, signaling that demand for services is buoying U.S. companies and the economy. The gain across all four index components — business activity, new orders, employment and supplier deliveries — follows another ISM report this week showing the group’s factory gauge advanced to a 14-year high.

Thursday’s numbers show little impact from ongoing trade conflicts, with an index of export orders increasing and imports little changed. While companies have flagged rising prices for some materials in other releases and on conference calls, a gauge of prices paid eased in August.

Service industries continue to face constraints meeting strong demand, with a measure of order backlogs still near a 14-year high.

The employment gauge climbed to a seven-month high of 56.7, another example of upbeat labor-market data before the government’s jobs report Friday. Economists expect non-farm payrolls rose 195,000 in August and the unemployment rate ticked down to 3.8 percent to match the lowest in nearly five decades.

The 16 non-manufacturing industries reporting growth in August — listed in order — are: Construction; Transportation & Warehousing; Retail Trade; Educational Services; Other Services; Real Estate, Rental & Leasing; Public Administration; Management of Companies & Support Services; Wholesale Trade; Mining; Accommodation & Food Services; Health Care & Social Assistance; Finance & Insurance; Utilities; Professional, Scientific & Technical Services; and Information. The only industry reporting a decrease is Agriculture, Forestry, Fishing & Hunting.

In August, the NMI registered 58.5 percent, 2.8 percentage points higher than the 55.7 percent registered in July, indicating continued growth in the non-manufacturing sector for the 103rd consecutive month. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

An NMI above 49 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the August NMI® indicates growth for the 108th consecutive month in the overall economy and expansion in the non-manufacturing sector for the 103rd consecutive month. Nieves says, “The past relationship between the NMI® and the overall economy indicates that the NMI for August (58.5 percent) corresponds to a 3.5-percent increase in real gross domestic product (GDP) on an annualized basis.”

Business Activity

ISM®’s Business Activity Index registered 60.7 percent in August, an increase of 4.2 percentage points from the July reading of 56.5 percent. This represents growth in business activity for the 109th consecutive month. Fourteen industries reported increased business activity, and two industries reported decreased activity for the month of August. Comments from respondents include: “Increased conversions of quotes to orders” and “Lower census volumes. Surgeons on vacation, resulting in fewer cases.”

The 14 industries reporting growth of business activity in August — listed in order — are: Educational Services; Retail Trade; Construction; Management of Companies & Support Services; Public Administration; Transportation & Warehousing; Other Services; Information; Accommodation & Food Services; Real Estate, Rental & Leasing; Wholesale Trade; Finance & Insurance; Professional, Scientific & Technical Services; and Health Care & Social Assistance. The two industries reporting a decrease in business activity in August are: Mining; and Agriculture, Forestry, Fishing & Hunting.

New Orders

ISM®’s Non-Manufacturing New Orders Index registered 60.4 percent, an increase of 3.4 percentage points from the July reading of 57 percent. New orders grew in August for the 91st consecutive month, at a faster rate compared with July. Comments from respondents include: “Our clients are feeling strongly about the current macroeconomics” and “Fiscal year end is approaching. Funds must be spent or lost.”

The 16 industries reporting growth of new orders in August — listed in order — are: Educational Services; Management of Companies & Support Services; Retail Trade; Construction; Public Administration; Transportation & Warehousing; Finance & Insurance; Utilities; Real Estate, Rental & Leasing; Wholesale Trade; Other Services; Professional, Scientific & Technical Services; Accommodation & Food Services; Health Care & Social Assistance; Information; and Mining. The only industry reporting a decrease in new orders for the month of August is Agriculture, Forestry, Fishing & Hunting.

Employment

Employment activity in the non-manufacturing sector grew in August for the 54th consecutive month. ISM®’s Non-Manufacturing Employment Index registered 56.7 percent, an increase of 0.6 percentage point when compared to the July reading of 56.1 percent. Twelve industries reported increased employment, and four industries reported decreased employment. Comments from respondents include: “Employee retention is getting much more challenging” and “Losing people to attrition [and] having trouble replacing [them] in the current market.”

The 12 industries reporting an increase in employment in August — listed in order — are: Real Estate, Rental & Leasing; Other Services; Mining; Transportation & Warehousing; Construction; Utilities; Retail Trade; Public Administration; Health Care & Social Assistance; Finance & Insurance; Wholesale Trade; and Professional, Scientific & Technical Services. The four industries reporting a reduction in employment in August are: Educational Services; Agriculture, Forestry, Fishing & Hunting; Information; and Management of Companies & Support Services.

Supplier Deliveries

Supplier deliveries were slower in August for the 32nd consecutive month. The index registered 56 percent, which is 3 percentage points higher than the 53 percent registered in July. This indicates that deliveries are slowing at a faster rate in August. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. Comments from respondents include: “Labor shortage issues on the supplier side” and “Delays in traffic; less drivers.”

The nine industries reporting slower deliveries in August — listed in order — are: Mining; Transportation & Warehousing; Wholesale Trade; Construction; Information; Accommodation & Food Services; Public Administration; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The two industries reporting faster deliveries in August are: Finance & Insurance; and Other Services. Seven industries reported no change in August.

Inventories

ISM®’s Non-Manufacturing Inventories Index grew in August for the seventh consecutive month, registering 53.5 percent, which is the same figure that was reported in June and July. Of the total respondents in August, 29 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Increased activity; stock levels rising to accommodate” and “Due to the widespread back-order issues of needles and syringes, we have increased safety stock.”

The seven industries reporting an increase in inventories in August — listed in order — are: Accommodation & Food Services; Construction; Other Services; Management of Companies & Support Services; Finance & Insurance; Wholesale Trade; and Retail Trade. The five industries reporting a decrease in inventories are: Agriculture, Forestry, Fishing & Hunting; Professional, Scientific & Technical Services; Health Care & Social Assistance; Transportation & Warehousing; and Public Administration.

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in August for the 30th consecutive month. ISM®’s Non-Manufacturing Prices Index registered 62.8 percent, 0.6 percentage point lower than the 63.4 percent reported in July. Twenty-eight percent of respondents reported higher prices, 66 percent indicated no change in prices paid and 6 percent of respondents reported lower prices.

The 12 non-manufacturing industries reporting an increase in prices paid during the month of August — listed in order — are: Mining; Management of Companies & Support Services; Utilities; Public Administration; Wholesale Trade; Professional, Scientific & Technical Services; Retail Trade; Construction; Finance & Insurance; Information; Health Care & Social Assistance; and Transportation & Warehousing. The two industries reporting lower prices in August compared to July are: Agriculture, Forestry, Fishing & Hunting; and Other Services.

Backlog Of Orders

ISM®’s Non-Manufacturing Backlog of Orders grew in August. The index registered 56.5 percent, which is 5 percentage points higher than the 51.5 percent reported in July. Of the total respondents in August, 40 percent indicated they do not measure backlog of orders.

The 14 industries reporting an increase in order backlogs in August — listed in order — are: Arts, Entertainment & Recreation; Retail Trade; Other Services; Accommodation & Food Services; Real Estate, Rental & Leasing; Transportation & Warehousing; Management of Companies & Support Services; Finance & Insurance; Information; Professional, Scientific & Technical Services; Construction; Public Administration; Wholesale Trade; and Health Care & Social Assistance. No industry reported a decrease in back-orders in August.

New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based personnel grew for the 19th consecutive month, at a faster rate in August. The New Export Orders Index registered 60.5 percent, which is 2.5 percentage points higher than the 58 percent reported in July. Of the total respondents in August, 65 percent indicated they either do not perform, or do not separately measure, orders for work outside of the U.S.

The nine industries reporting an increase in new export orders in August — listed in order — are: Construction; Other Services; Real Estate, Rental & Leasing; Accommodation & Food Services; Retail Trade; Mining; Wholesale Trade; Information; and Professional, Scientific & Technical Services. No industry reported a decrease in exports for the month of August. Eight industries reported no change in August.

IMPORTS
The Imports Index reading of 52 percent is 0.5 percentage point lower than the 52.5 percent reported in July. Fifty-five percent of respondents reported that they do not use, or do not track the use of, imported materials.

The five industries reporting an increase in imports for the month of August are: Other Services; Management of Companies & Support Services; Construction; Wholesale Trade; and Professional, Scientific & Technical Services. The two industries reporting a decrease in imports in the month of August are: Agriculture, Forestry, Fishing & Hunting; and Retail Trade. Nine industries reported no change in imports in August compared to July.

Inventory Sentiment

The ISM® Non-Manufacturing Inventory Sentiment Index in August registered 59.5 percent, which is 1.5 percentage points higher than the 58 percent that was reported in July. This indicates that respondents believe their inventories are still too high at this time. In August, 23 percent of respondents said their inventories were too high, 4 percent of the respondents said their inventories were too low, and 73 percent said their inventories were about right.

The 12 industries reporting a feeling that their inventories were too high in August — listed in order — are: Mining; Wholesale Trade; Utilities; Information; Construction; Retail Trade; Management of Companies & Support Services; Accommodation & Food Services; Health Care & Social Assistance; Public Administration; Professional, Scientific & Technical Services; and Transportation & Warehousing. The only industry reporting a feeling that their inventories were too low in August compared with July is Other Services.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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