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ISM reports ongoing non-manufacturing growth at a slower rate in July

The index ISM uses to measure non-manufacturing growth—known as the NMI—declined 3.5% to 53.9 (a reading above 50 indicates growth) in July, coming off June’s 57.4, which is its highest level since February 2015. The NMI grew for the 91st consecutive month, and the June NMI is 2% below the 12-month average of 55.9.

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Even though some of its key metrics were not at the lofty levels reached in June, non-manufacturing activity in July was still solid, 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—declined 3.5% to 53.9 (a reading above 50 indicates growth) in July, coming off June’s 57.4, which is its highest level since February 2015. The NMI grew for the 91st consecutive month, and the June NMI is 2% below the 12-month average of 55.9.

Including the PMI, each of the report’s core metrics was down in June.

Business activity/production fell 4.9% gain to 55.9, growing for the 96th consecutive month, while new orders fell 5.4% to 55.1 and still growing for the 96th straight month. Employment fell 2.2% to 53.6, but still showing growth for the 41st consecutive month. ISM said that 15 of 18 sectors reported growth in June.

ISM member comments included in the report were mostly positive about business conditions and the state of the economy.

A finance and insurance respondent said revenue and profits for 2017 are ahead of expectations and holding steady, and a health care and social assistance respondent observed that business volume slowed a bit.

Other notable metrics in the report included:
-supplier deliveries dipped 1.5% to 51 (a reading above 50 indicates contraction), slowing for the 19th consecutive month;
-inventories fell 1% to 56.5, growing for the fourth straight month;
-prices rose for second straight month, up 3.6% to 55.7; and
-backlog of orders fell 0.5% but remained on the right side of growth for the sixth straight month

Addressing the declines in the report, Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, explained that the numbers are still good on that over all growth remains intact.

“We did not know how long or sustainable things would be at the levels of growth we had the prior month,” he said. “Even though the numbers kind of blew through last summer into August in terms of consistency, these current numbers show a bit of lull this summer, with our respondents comments indicating they think things will pick up in the fall. I am not concerned as I like to see how things trend out over three months or so, and we are still reflecting growth as the baseline has moved up consistently.”

Looking at new orders and its July decline, Nieves said it was coming off of a high June reading, with July’s 55.1 still being solid in that range on a historical basis. And he added that the summer months see slowdowns with vacations and a shorter cycle time than what is seen with manufacturing in more of a demand pull environment compared to a longer ordering cycle like on the manufacturing side. While it is not a concern now, he said that could change should it continue for a period of time in the coming months.

When asked to assess the current state of non-manufacturing through the first seven months of the year, Nieves said things were ahead of expectations prior to the end of July.

“But for the most part, we have had good strong growth,” he said. “It could be the perception of a more corporate administration or something else. There are some things that are evident like more crowded highways and shopping malls, and restaurants, too. Increased travel and tourism fall into that, too. These are all indications that the economy is humming along.”


About the Author

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. Contact Jeff Berman

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