Imagine a consulting firm developing a five-year strategic plan for a major retail corporation. To make informed decisions, they must accurately assess the macroeconomic environment. The health of the non-manufacturing sector stands out as one of the most crucial indicators they need to monitor. So what do the latest figures reveal about the true state of America's non-manufacturing sector?
Key Findings
The latest Non-Manufacturing ISM Report On Business from the Institute for Supply Management (ISM) indicates that US non-manufacturing activity cooled slightly in July while maintaining robust expansion overall. The Non-Manufacturing Index (NMI) showed a modest decline but remained well above the growth threshold, demonstrating the sector's continued role as a pillar of the US economy. Despite global economic uncertainties, the resilience of America's domestic non-manufacturing sector warrants attention.
Critical Indicators Analysis
- Non-Manufacturing Index (NMI): The July NMI registered 55.5, down 1 percentage point from June's 56.5. Despite this dip, the index has remained above 50 for 78 consecutive months, signaling sustained expansion in non-manufacturing economic activity. Notably, July's NMI stood just 0.1 percentage points below the 12-month average of 56.5, highlighting the sector's stable long-term growth.
- Business Activity/Production: This sub-index measured 59.3, down 0.2 percentage points from the previous month but marking 84 consecutive months of growth. This indicates non-manufacturing firms continue to operate actively with sustained production levels.
- New Orders: The new orders index rose 0.4 percentage points to 60.3, also recording 84 months of consecutive growth. Increased new orders suggest continued expansion in non-manufacturing activity in coming months.
- Employment: The employment index fell 1.3 percentage points to 51.4, though it marked the second consecutive month of growth. The employment slowdown may reflect reduced hiring intentions amid tightening labor market conditions.
Sector Performance Variations
Fifteen non-manufacturing industries reported growth in July, demonstrating broad-based expansion across the sector. The strongest performers included:
- Arts, Entertainment & Recreation
- Educational Services
- Accommodation & Food Services
- Real Estate, Rental & Leasing
- Retail Trade
- Utilities
- Health Care & Social Assistance
- Public Administration
- Finance & Insurance
- Management of Companies & Support Services
- Transportation & Warehousing
- Wholesale Trade
- Construction
- Information
- Professional, Scientific & Technical Services
Meanwhile, three industries reported contraction:
- Other Services
- Agriculture, Forestry, Fishing & Hunting
- Mining
This sectoral divergence suggests uneven growth momentum within non-manufacturing, with certain industries facing specific challenges.
Industry Perspectives
Comments from survey respondents reflect complex market sentiment. A construction industry representative noted that declining oil and chemical product prices are affecting new projects and capital expenditures. Meanwhile, a management services respondent observed that while July sales declined from June levels, annual sales continue growing in line with strong sales forecasts.
Expert Commentary
Tony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee, views July's growth as a positive signal. He noted that May's significant NMI decline had raised concerns, but July's data confirms June's rebound wasn't temporary. Nieves emphasized monitoring coming months' data to identify long-term non-manufacturing trends.
Additional Notable Indicators
- Supplier Deliveries: This index fell 3.0 percentage points to 51.0. Readings above 50 indicate slower deliveries, potentially reflecting supply chain bottlenecks or increased demand.
- Inventories: The index dropped 1.5 percentage points to 54.0. Inventory declines may suggest businesses actively managing stock levels in response to demand fluctuations.
- Prices: The index decreased 3.6 percentage points to 51.9, potentially indicating easing inflationary pressures.
- Backlog of Orders: This index rose 3.5 percentage points to 51.0. Growing backlogs may signal pressure from unfilled orders, potentially increasing future production activity.
Nieves observed that despite slower supplier deliveries and growing backlogs, capacity appears unaffected - possibly linked to July's employment decline.
Future Outlook
Looking ahead, the US presidential election, consumer confidence, Brexit, and global market activity emerge as key factors influencing non-manufacturing. Nieves suggested these elements' domestic impact remains uncertain. He noted non-manufacturing remains largely decoupled from the global economy, with exports primarily comprising intangible assets like knowledge management, technology, and consulting services. Nieves concluded current non-manufacturing conditions appear stable and sustainable, though future trends require continued monitoring.
Conclusion
The July ISM non-manufacturing report reveals slightly cooling but fundamentally robust US non-manufacturing activity. Despite global economic uncertainties, domestic sector resilience remains noteworthy. Coming months warrant close monitoring of key indicators to assess long-term non-manufacturing trends.