ISM Non-Manufacturing Index Unexpectedly Declines in August

| September 3, 2010

The Institute for Supply Management reported that their non-manufacturing index fell to 51.5% in August from 54.3% in July, whereas consensus expectations were for a smaller decrease to 53.0%. The employment index dropped to 48.2%, indicating contraction.

“The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Managementâ„¢ Non-Manufacturing Business Survey Committee; and senior vice president — supply management for Hilton Worldwide. ‘The NMI (Non-Manufacturing Index) registered 51.5 percent in August, 2.8 percentage points lower than the 54.3 percent registered in July, indicating continued growth in the non-manufacturing sector but at a slower rate. The Non-Manufacturing Business Activity Index decreased 3 percentage points to 54.4 percent, reflecting growth for the ninth consecutive month, but at a slower rate than in July. The New Orders Index decreased 4.3 percentage points to 52.4 percent, and the Employment Index decreased 2.7 percentage points to 48.2 percent, reflecting contraction after one month of growth.'”

The drop in the non-manufacturing index confirms the uptrend reversal that occurred earlier this year, and the sharp decline in the employment index signals a potential reversal of its uptrend from late 2008 as shown on the following graph from Calculated Risk.

Although these data tend to be both noisy and volatile, the new downtrend in the non-manufacturing index is relatively well defined, suggesting that a move down into contraction territory below the 50 level has become likely.

Category: Commentary, Market Update

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