ISM Non-Manufacturing Services Index Declines 1.6% - NMI 52.1% for June 2012

The June 2012 ISM Non-manufacturing report shows the overall index decreased, -1.6 percentage points, to 52.1%. The NMI is also referred to as the services index and the decline indicates slower growth for the service sector.



New orders decreased -2.2 percentage points, business activity dropped -3.9 percentage points and new export orders decreased by -3.5 percentage points. This is the lowest NMI since January 2010. Anything below 50% shows contraction for the non-manufacturing index.

Below is a copy of the ISM services table, abbreviated.





NMI 52.1 53.7 -1.6 Growing Slower 30
Business Activity/Production 51.7 55.6 -3.9 Growing Slower 35
New Orders 53.3 55.5 -2.2 Growing Slower 35
Employment 52.3 50.8 +1.5 Growing Faster 6
Supplier Deliveries 51.0 53.0 -2.0 Slowing Slower 3
Inventories 53.0 56.0 -3.0 Growing Slower 5
Prices 48.9 49.8 -0.9 Decreasing Faster 2
Backlog of Orders 47.5 53.0 -5.5 Contracting From Growing 1
New Export Orders 49.5 53.0 -3.5 Contracting From Growing 1
Imports 53.5 53.0 +0.5 Growing Faster 7
Inventory Sentiment 64.5 63.0 +1.5 Too High Faster 181


Below is the graph for the non-manufacturing ISM business activity index, or current conditions, what we're doin' now meter. Business activity decreased -3.9 percentage points to 51.7% and is also at January 2010 levels. Here is the ISM's ordered services sector business activity list:

The industries reporting growth of business activity in June — listed in order — are: Educational Services; Arts, Entertainment & Recreation; Utilities; Management of Companies & Support Services; Information; Accommodation & Food Services; Retail Trade; Public Administration; Finance & Insurance; Construction; Transportation & Warehousing; and Wholesale Trade. The industries reporting decreased business activity in June are: Mining; Real Estate, Rental & Leasing; Other Services; Health Care & Social Assistance; and Professional, Scientific & Technical Services.



New orders decreased, -2.2 percentage points to 53.3%. Generally 50% is the inflection point between expansion and contraction. New orders are an indicator of future business activity. Mining topped the list for contraction.



The employment index increased +1.5 percentage points to 52.3%. Anything below 50 means contraction or in the case of workers, firing people. The below graph has been normalized to 50, the ISM inflection point for expansion versus contraction. This survey just reinforces ADP's higher employment numbers for the service sector. That said, the employment index is still weak.



New export orders declined -3.5 percentage points to 49.5% and is contracting. New export orders are from outside the United States, but to be performed by domestically sourced workers. Notice how U.S. citizen/perm. resident labor is not part of this definition. New Export orders hasn't contracted in 10 months. Mining, once again, is at the top of the contraction list, but 66% of survey participants do not take in overseas orders, or don't separate them out from all of their new orders.



Prices paid by the services sector dropped -0.9 percentage points to 48.9% and and is the 2nd month in a row for declining prices.



Order backlogs plunged -5.5 percentage points to 47.5% and is now in contraction. Not a good sign frankly, even thought 36% of those businesses surveyed don't track on order backlogs. Still, catching up with orders can imply additional slowing.



Inventories decreased -3.0 percentage points to 53%. Some of the comments by survey respondents might imply the declining inventories are not because of a slow down:

Of the total respondents in June, 28 percent indicated they do not have inventories or do not measure them. Comments from respondents include: "Faster deliveries from suppliers have allowed us to decrease inventories" and "Slightly lower due to strong sales."



Below are supplier deliveries or vendor supplies and it's how fast businesses are getting their stuff to make more stuff. Above 50 is a slow down, which is opposite how many of these sub-indices are defined. Slow-downs mean more demand and also can limit the ability of that business to produce, or business activity. No stuff to make more stuff and you're stuck. This month the index decreased -2.0 percentage points to 51.0, so supplies are getting to the these businesses faster.



The use of imported materials increased +0.5 percentage points to 53.5%. While 56% of survey respondents do not track on their imports, look who is at the top of the list for import use:

The seven industries reporting an increase in the use of imports in June — listed in order — are: Finance & Insurance; Professional, Scientific & Technical Services; Information; Management of Companies & Support Services; Arts, Entertainment & Recreation; Public Administration; and Retail Trade. The only industry reporting a decrease in imports for the month of June is Wholesale Trade.

Now what kind of imports could that be? Services imports includes BPO, or offshore outsourcing.



Below is the services sector ordered list reporting expansion vs. contraction overall:

The 12 non-manufacturing industries reporting growth in June — listed in order — are: Educational Services; Arts, Entertainment & Recreation; Management of Companies & Support Services; Retail Trade; Utilities; Transportation & Warehousing; Accommodation & Food Services; Public Administration; Construction; Information; Finance & Insurance; and Wholesale Trade. The five industries reporting contraction in June are: Mining; Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Real Estate, Rental & Leasing; and Professional, Scientific & Technical Services.

The NMI is made up of: Business Activity, New Orders, Employment and Supplier Deliveries, all equally weighted.

Here is our last month's overview, only graphs revised.

You might also want to compare the services index to this month's ISM Manufacturing index.

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