The non-manufacturing (services) ISM is still in positive territory, but growth was much weaker than expected.
A poor ISM reading comes on the heels of a poor reading in the Chicago PMI and an exceptionally weak reading in the New York PMI.
The ISM survey is by a different company than the PMI surveys.
The Bloomberg Econoday consensus estimate for the non-manufacturing ISM was 55.5 in a range of 54.8 to 56.5. The reported number is 52.9.
Highlights
The ISM’s non-manufacturing index confirms what is proving to be a very weak month of May for the nation’s economy. The index fell a very sharp 2.8 points to 52.9 to signal the weakest rate of monthly growth since January 2014. The report’s employment index, in what matches this morning’s data from the government, is the weakest component, down 3.3 points to a 49.7 level that signals marginal month-to-month contraction in the sample’s employment levels.
But there is a solid signal of strength in the report as new orders, though falling 5.7 points, are still well over the breakeven level at 54.2. Yet even here, the rate of growth is the slowest since February 2014. Another plus, or at least not a negative, is no change for backlog orders which are at 50.0, still the weakest reading since May 2015. Demand for the nation’s services is always a plus for trade data but this report is hinting at a downturn with the export index at 49.0 and the lowest level since April last year.
ISM’s sample was active as far as output goes with the business activity index at 55.1, yet still down 3.7 points, and were still active importers with the related index at 53.5 for only a half point dip. Prices are also a positive, up 2.2 points to 55.6 and reflecting increases underway in energy prices in what is welcome news for policy makers who are trying to stimulate inflation.
Otherwise, however, there is very little welcome news at all in the May report. This report has been consistently upbeat which underscores the unwelcome importance of today’s results.
Recent History
The ISM non-manufacturing index is expected to edge lower from 55.7 in April to 55.5 in May to point to steady and solid growth for the great bulk of the nation’s economy. New orders were very strong in April, at 59.9 and helping to lift the sample’s hiring as employment came in at 53.0 for the best reading of the year. The strength in the April report was a surprise and correctly pointed to improved gains for many subsequent indicators.
Non-Manufacturing ISM Trend
ISM Report
Let’s dive into the ISM Non-Manufacturing Report for more detail.
| Index | May | April | PP Change | Direction | Rate of Change | Trend in Months |
|---|---|---|---|---|---|---|
| NMI® | 52.9 | 55.7 | -2.8 | growing | Slower | 76 |
| Business Activity / Production | 55.1 | 58.8 | -3.7 | growing | Slower | 82 |
| New Orders | 54.2 | 59.9 | -5.7 | Growing | Slower | 82 |
| Employment | 49.7 | 53.0 | -3.3 | Contracting | From Growing | 1 |
| Supplier Deliveries | 52.5 | 51.0 | 1.5 | Slowing | Faster | 5 |
| Inventories | 54.0 | 54.0 | 0.0 | Growing | Same | 14 |
| Prices | 55.6 | 53.4 | 2.2 | Increasing | Faster | 2 |
| Backlog of Orders | 50.0 | 51.5 | -1.5 | Unchanged | From Growing | 1 |
| New Export Orders | 49.0 | 56.5 | -7.5 | Contracting | From Growing | 1 |
| Imports | 53.5 | 54.0 | -0.5 | Growing | Slower | 4 |
| Inventory Sentiment | 60.0 | 61.0 | -1.0 | Too High | Slower | 228 |
ISM notes “The past relationship between the NMI® and the overall economy indicates that the NMI® for May (52.9 percent) corresponds to a 1.6 percent increase in real gross domestic product (GDP) on an annualized basis.”
Also see Shocking Downturn in New York ISM, Chicago ISM Merely Pathetic.
Mike “Mish” Shedlock
