After flirting with near-contraction in May, the service sector rebounded sharply in June according to the Institute for Supply Management.
Please consider the June 2023 Services ISM® Report On Business® emphasis mine
Economic activity in the services sector expanded in June for the sixth consecutive month as the Services PMI® registered 53.9 percent, say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 36 of the last 37 months, with the lone contraction in December of last year.
The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “In June, the Services PMI® registered 53.9 percent, 3.6 percentage points higher than May’s reading of 50.3 percent. The composite index indicated growth in June for the sixth consecutive month after a reading of 49.2 percent in December, which was the first contraction since May 2020 (45.4 percent).
“Fifteen industries reported growth in June. The Services PMI®, by being above 50 percent for the sixth month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector. The composite index has indicated expansion for all but three of the previous 160 months.”
Nieves continues, “There has been an uptick in the rate of growth for the services sector. This is due mostly to the increase in business activity, new orders and employment. Increased capacity, backlog reduction and continued improvements in logistics have impacted delivery times (resulting in a decrease in the Supplier Deliveries Index). The majority of respondents indicate that business conditions remain stable; however, they are cautious relative to inflation and the future economic outlook.”
Prices have increased 73 consecutive months, albeit at a slower pace in June.
ISM Manufacturing Dips to 46 Percent, 8th Straight Month of Contraction
It’s a tale of two different economies as ISM Manufacturing Dips to 46 Percent, 8th Straight Month of Contraction
Economic activity in the manufacturing sector contracted in June for the eighth consecutive month following a 28-month period of growth according to the Institute for Supply Management.
For the first time during this manufacturing downturn, every ISM® subcategory is in contraction.
In response to the manufacturing report, several people commented that manufacturing is only 10 percent of the economy. That’s not really the case, because the summations do not count intermediate activity, only final sales. I will do a report on this idea later.
Diffusion Index Comments
The ISM is a diffusion index, signaling direction not amount. For example a firm hiring 10 workers and a firm laying off 200 workers balances out.
And there is a survival bias and a weighting bias.
Divergences
- GDP vs GDI: Largest Discrepancy Between GDP and GDI in 20 Years
- Jobs vs Employment: Jobs Grow by 372,000 but Employment Shrinks by 315,000
ISM is another divergence in this strangest of strange economies. ISM manufacturing signals a recession that isn’t here unless Gross Domestic Income (GDI) is correct.
We have not seen an economy anything like this one for something like forever.
Just looked at the used car market. Prices gave up some, then rebounded.
https://www.cargurus.com/Cars/price-trends/
ISM plunged from an all time high and CMBS industrial delinquencies is at nadir for THREE years, under multi families.
Bankruptcy Filings on the Rise in First Half of 2023 (these are commercial filings).
Stagflation, buying power eroding, GDP down, credit card debt over $1T, trade deficits larger, rents up, eggs down, proxy wars, planned wars – but yet…the U.S. consumer says ,”Heck with it all, we goin’ on vacay and living our best lives.”
It’s summer; people will go into debt for vacations. People are going into greater debt for food, cars, houses, no one cares anymore (so it seems). Therefore, there is a need for businesses to hire, they will pay more for employees, (despite service really being terrible), and the public goes on their merry way to enjoy life.
What are the consequences? A worse credit score? Who cares…government overspends and does not need to repay debt. Why should I? Life’s too short (said near everyone who has made a bad financial decision). L’chaim…eat, drink, be merry.
“ISM is another divergence in this strangest of strange economies.”
We are in the strangest of economies. No one here has experienced this weird conjunction of forces now playing on the economy. We grew up in an environment where markets were getting freer and freer and interest rates went only lower and never higher. Now we have markets closing and regionalizing. Additionally we have birth rates plummeting and major economies facing depopulation. Roll in a major war not in a far off land but in the heart of the developed countries and we have the makings of the most difficult financial and social environment to be trying to predict. Good luck to Mish and everyone else to figure this one out. At least we live in interesting times.
“We grew up in an environment where markets were getting freer and freer and interest rates went only lower and never higher.”
Since negative interest rates is such a sign of “freer” “markets” and all………
With most of the 2nd quarter economic data in, the GDPNow model for GDP is at 2.1%.
Private sector companies added 497,000 jobs in June, more than double expectations, ADP says
https://www.cnbc.com/2023/07/06/adp-jobs-report-private-sector-added-497000-workers-in-june.html
I know that airlines are busting at the seams with passengers. You can’t find a cheap flight to Europe if your life depended on it. Most restaurants I visit are full but I know there are people hurting out there, mostly the young because they are not getting free money from social security or subsidized healthcare from medicare.
Yes, it’s a tale of two economies, socialists on the government dole spending like drunken sailors and everyone else working jobs trying to make ends meet and paying all those taxes to support everyone else.
It will only get worse as millions more sign up for social security and medicare over the next few years. Some are fed up and leaving the country 😉
I read something similar and it mentioned that government – federal, state and local – are now such a big portion of the economy, that they drive growth. Government is growing and impervious (so far) to changes in interest rates.
I’m not sure people on social security are spending like drunken sailors, the average benefit is $22k a year. Unclear if that’s who you are referring to.
The consumer is spending the money he squirreled away during lockdown. If you needed the free money for your expenses, then things aren’t great. This all makes sense, the money being spent isn’t money that is earned. Take a look at m2, its barely budged since the massive increase in 2019 despite supposed tightening.
The service sector has always been a lagging indicator similar to unemployment. The Treasury and the FED pumping liquidity into the stock and bond markets through various mechanisms has created a wealth effect, circa 2022 for those that have assets. On the flip side private credit creation is waning except for revolving, those purchasing homes for a myriad of reasons but at a reduced ROC, and HELOC loans to pay off other debt, go on vacation, invest, etc.
In short, rinse and repeat.
This economy can boggle the mind for sure.
-We have metrics that literally diverge and go in opposite directions.
-Earning reports that have been fairly mixed for the last two quarters.
-The TMS has been showing significant declines, which should be a somewhat sound indicator of a recession.
-High interest rates and a housing market that shows few (if any) signs of giving back the gains of 2020-2022.