US: ISM Non-Mfg Index

Wed Sep 06 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Composite Index - Level 55.8 53.8 to 57.0 55.3 53.9

Not too hot and certainly not cold is the ISM's non-manufacturing report for August where the composite index came in at a very solid 55.3. New orders are running a little stronger, at 57.1, with backlog orders building nicely at 53.5. Business activity is very busy at 57.5 and employment strong at 56.2. Delivery times are stable, inventories are on a moderate build and prices are showing welcome pressure. This sample had been running perhaps unsustainably hot through most of the year with the slightly cooler readings for August very favorable. This report, together with this morning's PMI services, point to a solid and impressive second half for the bulk of the economy.

Market Consensus Before Announcement
In a rare outcome, the ISM non-manufacturing report for July did not beat all estimates, coming in instead at 53.9 to show the least strength since August last year. Growth in new orders slowed as did employment though there were still signs of strength with gains for backlog orders and slowing in delivery times. Forecasters are calling for a bounce back in August to 55.8.

The Institute For Supply Management surveys more than 375 firms from numerous sectors across the United States for its non-manufacturing index. 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 economy -- indicating 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.