US: ISM Non-Mfg Index

Thu Sep 03 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Composite Index - Level 58.5 56.5 to 61.5 59.0 60.3

What global turbulence? The ISM non-manufacturing index held on to the great bulk of its historic July surge, coming in at 59.0 in August vs the Econoday consensus for 58.5. Outside of July's 60.3, this is the second strongest rate of monthly growth since December 2005!

New orders are especially strong, at a robust 63.4 for only a 4 tenth downtick. Not much effect there. And backlog orders? They're up 2.5 points to 56.5 which is the highest rate of accumulation since May 2005.

Employment edged back from July's near record level but remains very strong at 56.0. Export orders continue to expand, at 52.0 vs July's outsized 56.5 in what pessimists can hang on to as an indication of global-related trouble.

But the non-manufacturing sector, unlike manufacturing, is insulated to a large degree from global effects, as illustrated in today's report.

Market Consensus Before Announcement
The ISM non-manufacturing index surged strongly in July, up more than 4 points to 60.3 for the strongest reading in 10 years. Forecasters see a give back in August but not much, to 58.5 which would still signal exceptional growth for the great bulk of the nation's economy. This report is standing out right now, pointing to outsized strength ahead.

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.