US: ISM Non-Mfg Index

Mon Jul 06 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Composite Index - Level 56.0 55.2 to 56.6 56.0 55.7

Rates of growth in ISM's non-manufacturing report held steady and solid in June, at a composite index of 56.0 for a 3 tenths gain from May. New orders are strong, at 58.3 for a 4 tenths gain with backlogs back over 50 at 50.5 for a 2 point gain. Growth in export orders slowed but still held over 50 at 52.0 in a reminder that services exports, unlike goods exports, are in surplus.

Other readings include a strong reading for business activity, up 2.0 points to 61.5, a gain offset by slowing in employment to 52.7 from a strong four-month streak over the 55 level. The report's price reading slowed slightly to 53.0, a soft level contrasting with inflationary signals in this morning's PMI service report.

A strong signal in this report is wide breadth among 18 industries with 15 showing growth with two of the exceptions, however, including mining and construction. Contraction in the latter is a surprise given wide indications of growth in housing.

This report is solid but, together with the PMI services index, point to a lack of acceleration for the end of the second quarter.

Market Consensus Before Announcement
The ISM non-manufacturing index fell 2.1 points in May to a moderate 55.7 though new orders and business activity held at stronger levels in the high 50s. Apart from services, this report offers indications on construction, which have been strong, and on mining, which has been weak. This report also includes an export reading which has been showing, despite the strength in the dollar, still strong foreign demand for U.S. technical and managerial services.

The non-manufacturing ISM surveys more than 375 firms from numerous sectors across the United States. This index covers services, construction, mining, agriculture, forestry, and fishing and hunting. The non-manufacturing composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the non-manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation. A reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries. However, slower deliveries are a plus for the economyindicating demand is up and vendors are not able to fill orders as quickly.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM non-manufacturing survey's composite index, investors will know what the economic backdrop is for the various markets. The non-manufacturing composite index has four equally weighted components: business activity, new orders, employment, and supplier deliveries. The ISM did not begin publishing the composite index until the release for January 2008. Prior to 2008, markets focused on the business activity index. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. While the ISM manufacturing index has a long history that dates to the 1940s, this relatively new report goes back to 1997.