The non-manufacturing, or services sector, slowed its rate of growth in July. Specifically, the non-manufacturing survey, issued by the Institute for Supply Management, produced a July reading of 52.7, down from the prior month's 53.3. The July figure also was below the expected rate of 53.6. The shortfall, however, was not as severe as that experienced by the companion manufacturing sector, where data were issued by the ISM on Monday, and sent economists into action lowering their growth forecasts for the third and the fourth quarters.
The non-manufacturing result, it should be noted, was still above the 50.0 reading that separates an increase in this economic category from a decline. Nevertheless, the result, while showing an increase for the 20th month in a row, was still the lowest reading thus far in 2011, falling nominally below the 52.8 survey result seen in April. It also was the lowest reading in more than a year. By comparison, non-manufacturing activity had reached 59.7 in February of this year and was still at 57.3 in March. The July result marked the second month in a row that this metric had slowed its rate of growth.
As for some components in the overall survey, we saw a reduced rate of growth in new orders, with that component easing from 53.6 to 51.7, a slowing in employment growth from 54.1 to 52.5, decelerating supplies deliveries, with that sector easing from 52.0 to 50.5, and an outright drop in backlogs, as this metric fell from 48.5 in June to 44.0 last month. One bit of good news, seemingly, is that prices slowed as well, coming in at 56.0 from 60.9 in June. The sharpest contraction came on the export front, with that reading tumbling from a 57.0 in June to 49.0 last month.
As to what the nation's purchasing managers are saying, we find that some are opining that sales volumes are fairly steady, but that input costs are increasing. Others contend that the business outlook remains steady thus far, but that they have concerns about the second half of the year. Finally, some indicate that home construction is still very slow, which is no surprise, with repair and remodeling the only areas of strength.
For the record, 13 of the 18 sectors reporting showed overall growth last month, with the remaining handful of areas seeing an overall contraction, that is, registering a score of less than 50.0 for the latest month. All in all, it was not a confidence-building result, although the survey was not as deflating as the manufacturing report put out two days ago. Our sense, meanwhile, remains that the nation will struggle to achieve a growth rate of better than 2% in the current quarter, with the risks clearly tilted to the downside at this time.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.