US: ISM Non-Mfg Index

Wed Aug 05 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Composite Index - Level 56.2 55.0 to 57.5 60.3 56.0

ISM's non-manufacturing sample reports a giant surge of strength, to 60.3 for the July index and the highest reading in 10 years. The result far surpasses expectations where the high-end Econoday forecast was 57.5.

New orders, at 63.8, and backlog orders, at 54.0, both show substantial acceleration from June as do new export orders. Strong orders are boosting employment which, echoing this morning's earlier release of the Services PMI report, is robust, at 59.6 for one of the strongest readings on the books.

Breadth is very strong with 15 of 18 industries reporting composite growth in the month including gains for retail trade, transportation & warehousing, and construction. Mining is one of two reporting contraction.

The rise in export orders underscores the strength of the nation's trade surplus in services which, despite strength in the dollar, is getting a boost from foreign demand for technical and management services. The service sector appears to be rolling along fine and will likely continue to offset weakness in manufacturing. And for Friday's jobs report outlook, the employment index in this report will help offset this morning's very weak ADP estimate.

Market Consensus Before Announcement
The ISM non-manufacturing index is expected to hold steady, at 56.2 for July vs a very solid 56.0 in June. This index has held solidly over 55 for the last year, underscoring the strength of the domestic economy which, against the tailwind for exports, has kept up GDP. The report's employment index, which slowed noticeably in June, always gets special attention ahead of the employment report.

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.