The ISM Non-manufacturing Report for July, 2011 was released to today with some interesting data. But before I get into that, you need to see the trend (I added the red line at the 50% mark):
Since March, 2011 this services sector has been trending down, reflecting the overall trends in the U.S. economy. While the report notes that a score of over 50 indicates positive growth, another decrease (0.6) is a trend of declining economic activity. It is the slowest rate of positive growth for the past 17 months.
Here are the important indicators from this report:
New Orders Index grew in July for the 24th consecutive month. The index registered 51.7 percent, a decrease of 1.9 percentage points from the 53.6 percent reported in June.
Inventories Index registered 56.5 percent in July, 3 percentage points higher than the 53.5 percent reading that was reported in June.
Inventory Sentiment Index in July registered 59.5 percent, which is 1 percentage point higher than the 58.5 percent reported in June. This indicates that respondents believe their inventories are still too high at this time.
Backlog of Orders Index contracted in July for the second consecutive month. The index registered 44 percent, 4.5 percentage points lower than the 48.5 percent reported in June.
Employment Index registered 52.5 percent. This reflects a decrease of 1.6 percentage points when compared to the 54.1 percent registered in June.
New Export Orders Index for July registered 49 percent, which is 8 percentage points lower than the 57 percent reported in June.
Imports Index contracted in July for the second consecutive month after 10 consecutive months of growth. The index registered 47.5 percent, which is 1 percentage point higher than the 46.5 percent reported in June.
Supplier Deliveries Index registered 50.5 percent in July, 1.5 percentage points lower than the 52 percent registered in June, indicating that supplier deliveries continued to slow in July. A reading above 50 percent indicates slower deliveries.
The only positive is that while prices were higher, they trended down for the month.
Also, from the Census Department today, new manufacturing orders for June, 2011 were also down:
Factory orders fell 0.8 percent in June reflecting a steep 1.9 percent decline in durable goods (revised from minus 2.1 percent). Orders for non-durable goods, the new data in today’s report, were unchanged in the month. Orders for nondefense capital goods, for defense goods and for transportation equipment were especially weak in June. Other readings include incremental monthly gains of 0.2 percent for shipments and inventories and a little bit stronger gain of 0.3 percent for unfilled orders. The nation’s manufacturing sector appears to be slowing this summer but still looks to be in growth mode.
Inventories of manufactured durable goods in June, up eighteen consecutive months, increased $1.8 billion or 0.5 percent to $357.8 billion, revised from the previously published 0.4 percent increase. This was at the highest level since the series was first published on a NAICS basis and followed a 1.3 percent May increase. [The ratio of manufacturers' inventories to shipments and unfilled orders to shipments is 1.34.]
We believe these reports are consistent with a stagnating economy. This will put pressure on employment, and at the least will deter job creation, thus keeping unemployment high. This will set the stage for QE3, the stories on which are appearing more and more frequently in the media. No wonder Bernanke drinks.
