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First Cut: ISM Non-Manufacturing Index rises in August on activity and orders

The ISM Non-Manufacturing Index rose to 56.4 in August from 53.7 in July when it was the lowest since 53.9 in July 2017. The reading is consistent with a return to moderate expansion and extends the string of growth readings to 115 months.  However, some of the increase may be due to a reprieve on fresh tariffs on trade with China. Businesses may have moved to close deals delayed by earlier uncertainties and the delay in fresh tariffs proved to be short-lived. Services have not suffered as much as has activity in the manufacturing sector, but are still feeling the pinch that is likely to be even more visible in September.

The mild rebound is due to a bounce back the business activity index to 61.5 in August after 53.1 in July and a climb in new orders to 60.3 from 54.1.

I note that order backlogs — not a component of the non-manufacturing index — fell to 49.0 in August from 53.5 in July and was the first below 50 in nearly three years. Even with a one-month firming in orders, businesses have less in the pipeline to sustain activity should new orders fall again.


New export orders — also not a component of the total index — fell to only narrowly expansionary at 50.5 in August after 53.5 in July. Slowing global growth and uncertain trade policy are hampering orders from abroad. The import index was also at 50.5 in August after 53.5 in July. Imports have shown only brief pick ups in the pace of activity since the start of the year, and export orders have generally lost momentum since the spring.

The index for employment declined to 53.1 in August from 56.2 in July and was the lowest since 51.4 in April 2017.

The index for supplier deliveries remained near neutral at 50.5 in August after 51.5 in July and June. At present, vendors’ performance is neither too fast nor too slow.

The pace of increases in prices paid remained close to where it has been since the start of the year at 58.2 in August after 56.5 in July and 58.9 in June. Fluctuations in energy prices have not had more than relatively small short-term impacts on price stability.

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