The July 2013 ISM Non-manufacturing report shows the overall index increased, 3.8 percentage points, to 56.0%. The NMI is also referred to as the services index and the increase indicates faster growth for the service sector. The business activity index soared by 8.7 percentage points to 60.4%, a high not seen since December 2012.
The comments from survey respondents can be described as stable, although the healthcare industry blasted Obamacare:
Sequestration and healthcare reform causing uncertainty and lower revenues.
The healthcare services industry also is in contraction for the month. Considering private health care's increasing take of the American economic pie, we don't think this is bad news. The indexes rule of thumb is any index below 50% shows contraction for the non-manufacturing index, anything above 50% indicates expansion. Below is a copy of the ISM services table, abbreviated.
|ISM NON-MANUFACTURING SURVEY - July 2013|
|Backlog of Orders||46.5||52.0||-5.5||Contracting||From Growing||1|
|New Export Orders||49.5||47.5||+2.0||Contracting||Slower||2|
|Inventory Sentiment||64.0||61.5||+2.5||Too High||Faster||194|
Below is the graph for the non-manufacturing ISM business activity index, or current conditions, what we're doin' now meter. Business activity just roared up and is a very positive sign for the economy, as mentioned above. Here is the ISM's ordered services sector business activity list:
The industries reporting growth of business activity in July — listed in order — are: Arts, Entertainment & Recreation; Information; Utilities; Retail Trade; Construction; Wholesale Trade; Real Estate, Rental & Leasing; Finance & Insurance; Management of Companies & Support Services; Professional, Scientific & Technical Services; Accommodation & Food Services; and Public Administration. The industries reporting decreased business activity in July are: Educational Services; Health Care & Social Assistance; Transportation & Warehousing; and Mining.
New orders also soared with a 6.9 percentage point increase to 57.7%. New orders are an indicator of future business activity. and retail trade topped the list of an increase in new orders. End of the fiscal year purchases was one reason given for the increase but the other was simply an upturn in new orders from customers.
Inventories grew but at a slower pace as the index decreased one percentage point to 53.5%. Over a quarter of survey respondents either do not have or do not track their inventories.
The employment index actually decreased 1.5 percentage points to 53.2%. While there is a lag from new orders to higher employment, this is still not great news considering the soaring business activity indicator. The below ISM services employment graph has been normalized to 50, the ISM inflection point for expansion versus contraction.
New export orders increased 2.0 percentage points to 49.5%, which is still in contraction. 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. We don't know how accurate this index is since 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 increased 7.6 percentage points to 60.1% and and is the 46th month in a row for increasing prices.
Order backlogs plunged -5.5 percentage points to put the index at 46.5%, which is contraction. Construction was at the top of the list in order backlogs, so this contraction might be due to construction rehiring and catching up to the recovering market, even thought 35% of those businesses surveyed don't track on order backlogs.
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 increased 1.0 percentage points to 52.5%, so supplies are getting to the these businesses slower than last month.
The use of imported materials decreased -3.0 percentage points to 50.5%. While 55% of survey respondents do not track on their imports, at at the top of the list for import use increase was Arts, Entertainment & Recreation;. Services imports includes BPO, or offshore outsourcing can sometimes be classified as indirect materials.
Below is the services sector ordered list reporting expansion vs. contraction overall:
The 16 non-manufacturing industries reporting growth in July — listed in order — are: Arts, Entertainment & Recreation; Construction; Information; Wholesale Trade; Retail Trade; Finance & Insurance; Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Utilities; Educational Services; Other Services; Management of Companies & Support Services; Professional, Scientific & Technical Services; Accommodation & Food Services; Public Administration; and Transportation & Warehousing. The two industries reporting contraction in July are: Mining; and Health Care & Social Assistance.
The NMI is made up of: Business Activity, New Orders, Employment and Supplier Deliveries, all equally weighted. Here is our past services index, overviews. You might also want to compare the services index to the ISM Manufacturing index.