On the heels of a better-than-expected jobs report this morning, investors received another piece of semi-encouraging news on the U.S. economy a half hour after trading commenced. The Institute for Supply Management (ISM) reported that non-manufacturing activity for the month of July slightly exceeded expectations. The services data were also a bit more encouraging than the Tempe, Arizona-based trade group’s companion report on manufacturing, which just a few days ago showed that activity in that sector had contracted for the second consecutive month in July.
Specifically, the Institute for Supply Management said that non-manufacturing activity rose to 52.6 in July, 0.5 percentage points higher than the seasonally adjusted June reading of 52.1—an indication that non-manufacturing expanded at a nominal pace last month. (A figure above 50 suggests the non-manufacturing sector of the economy is generally expanding.) In addition, the Non-Manufacturing Business Activity Index jumped to 57.2, well ahead of the prior month’s tally of 51.7—the 36th consecutive month of growth. Moreover, the New Orders Index increased by 1.0 percentage point to 53.4.
However, there were some continued discouraging parts of the latest report on the services sector. Specifically, the Employment Index decreased by 3.0 percentage points to 49.3, indicating contraction in employment for the first time since December, 2011. The latter reading, in our opinion, may be an indication that today’s earlier report from the government on job creation may not be as formidable as investors seemed to think. Too, seven industries reported contractions in July, including the mining, agricultural, and construction areas. Conversely, 11 industries reported growth last month.
All in all, the latest report on non-manufacturing activity was relatively better than most of the reports on the domestic economy issued in the last few weeks—and another sign that second-half GDP growth in the area of 2% is obtainable. Our sense is that continued improvement in the services sector, which accounts for roughly two-thirds of the nation’s economic output, is a good sign, even if the current pace is still pedestrian at best.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.