Great news: Service industry now slowing down, too
posted at 4:05 pm on August 3, 2011 by Ed Morrissey
On Monday, the Institute for Supply Management reported a significant drop in its measure for manufacturing activity in a first glance at economic performance in the third quarter of 2011. Today, ISM follows up that report with another that shows another significant drop in non-manufacturing activity as their services index fell to a low not seen since February 2010. Reuters found this rather surprising:
The pace of growth in the services sector ticked down unexpectedly in July to the lowest level since February 2010, while the number of jobs created by the private sector also slowed, separate reports showed on Wednesday.
The Institute for Supply Management said its services index fell to 52.7 last month from 53.3 in June. The reading fell shy of economists’ forecasts for 53.6, according to a Reuters survey. …
“It is slightly weaker than expected, most of the key gauges were down. It looks like this confirms that we are in a bit of a soft patch here,” said Rudy Narvas, senior economist at Societe Generale in New York.
ISM considers this still a growth reading, albeit at a lower rate. But their respondents don’t see growth continuing for very much longer:
The NMI registered 52.7 percent in July, 0.6 percentage point lower than the 53.3 percent registered in June, and indicating continued growth at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased 2.7 percentage points to 56.1 percent, reflecting growth for the 24th consecutive month and at a faster rate than in June. The New Orders Index decreased by 1.9 percentage points to 51.7 percent. The Employment Index decreased 1.6 percentage points to 52.5 percent, indicating growth in employment for the 11th consecutive month, but at a slower rate than in June. The Prices Index decreased 4.3 percentage points to 56.6 percent, indicating that prices increased at a slower rate in July when compared to June. According to the NMI, 13 non-manufacturing industries reported growth in July. Respondents’ comments remain mixed; however, for the most part they indicate that business conditions are flattening out.
The 13 non-manufacturing industries reporting growth in July based on the NMI composite index — listed in order — are: Transportation & Warehousing; Mining; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Public Administration; Educational Services; Information; Finance & Insurance; Other Services; and Wholesale Trade. The five industries reporting contraction in July are: Professional, Scientific & Technical Services; Management of Companies & Support Services; Health Care & Social Assistance; Utilities; and Construction.
Their employment index dropped as well after two months of mild increases. Supplier deliveries slowed for the third straight month, while backlogs, exports, and imports all turned negative. Of the industries reporting contraction in July, the most obvious is construction, which has been hammered for the last three years, while the most surprising might be health care and “social assistance.” Health care has been a growing industry even during the recession and supposed recovery, and the passage of ObamaCare made it seem like a lock for consistent growth.
With Friday’s jobless number pending, the employment index is perhaps the most interesting. The ISM service report shows a mildly positive figure, but lower than in June — when only 18,000 jobs got added to the economy. The ISM manufacturing report showed a steeper drop from June of 6.4 points to a figure slightly higher than the services report. Either way, it looks like another anemic hiring report will arrive Friday morning, or perhaps worse. The market expectations of 85,000 new jobs added seems hopelessly optimistic.