ISM Services Less Good in June 2011

Our warning continues – this is a survey and not hard data.   The Institute for Supply Management (ISM) Non-Manufacturing Business Survey was “less good” in June 2011.

The NMI [Non-Manufacturing Index] registered 53.3 percent in June, 1.3 percentage points lower than the 54.6 percent registered in May, and indicating continued growth at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased 0.2 percentage point to 53.4 percent, reflecting growth for the 23rd consecutive month, but at a slightly slower rate than in May. The New Orders Index decreased by 3.2 percentage points to 53.6 percent. The Employment Index increased 0.1 percentage point to 54.1 percent, indicating growth in employment for the 10th consecutive month and at a slightly faster rate than in May. The Prices Index decreased 8.7 percentage points to 60.9 percent, indicating that prices increased at a slower rate in June when compared to May. According to the NMI, 15 non-manufacturing industries reported growth in June. Respondents’ comments are mixed about the business climate and vary by industry and company. The most prominent concern remains about the volatility of prices.

In May the ISM non-manufacturing report was only survey improving – now in June, it is the only index declining.  admittedly the decline is slight.   The Institute for Supply Management (ISM) Non-Manufacturing Survey of Purchasing Managers is a relatively new survey which is not tracking any economic benchmark.

No pundit yet has figured out to what it relates, and Econintersect has tried to find something it tracks (analysis here).

Econintersect sees anecdotal evidence supporting the survey results that new orders are less good.   Readers are reminded that one of the major criticisms of this survey is the way the respondents are weighted.  Here is a list of  the sectors that the ISM says sales are declining:

The four industries reporting contraction of new orders in June are: Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Retail Trade; and Health Care & Social Assistance.

In an economy 60% driven by consumers, and if you believe this ISM survey is accurate – warning bells should be going off.

But before you go jumping out the window, the terrible backlog of orders rides in.  Backlog is basically orders which cannot be filled today either because the job is so big, or there is some component lead time necessary before the order can be completed.  In June, 43% of the respondents do not measure backlog.  Backlog MUST be growing for the economy to be improving.  Here the ISM’s list of industries reporting increases and decreases:

The five industries reporting an increase in order backlogs in June are: Construction; Retail Trade; Other Services; Health Care & Social Assistance; and Wholesale Trade. The five industries reporting lower backlog of orders in June are: Utilities; Information; Professional, Scientific & Technical Services; Mining; and Finance & Insurance. Eight industries reported no change in order backlogs for the month of June compared to May.

Here, retail trade’s backlog is growing.

The moral is that survey opinions do not need to make sense.  I will wait for hard data.

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5 replies on “ISM Services Less Good in June 2011”

  1. I would assume that the large decline in prices would be relevant as fuel for the fire of a stronger future for this index.

  2. Likely true that falling fuel prices make the future look brighter. However, if you are watching spot prices today rising. Rick Ackerman is forecasting September crude delivery at a few pennies under $100.

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