ISM Up

From the Institute for Supply Management:

The NMI (Non-Manufacturing Index) registered 47 percent in June, 3 percentage points higher than the 44 percent registered in May, indicating contraction in the non-manufacturing sector for the ninth consecutive month, but at a slower rate. The Non-Manufacturing Business Activity Index increased 7.4 percentage points to 49.8 percent. The New Orders Index increased 4.2 percentage points to 48.6 percent, and the Employment Index increased 4.4 percentage points to 43.4 percent. The Prices Index increased 6.8 percentage points to 53.7 percent in June, indicating an increase in prices paid from May. This is the first time the index has registered above 50 percent since October 2008. According to the NMI, six non-manufacturing industries reported growth in June. Respondents' comments continue to be mixed and tend to be industry- and company-specific about business conditions."

Here's a chart:



Notice the index has been in an uptrend since October of last year. While the number is still below 50 and therefore still in a contraction it has been slowly inching its way into positive territory.

Here are the anecdotal comments from the same report:

• "Business has improved and holding steady." (Arts, Entertainment & Recreation)
• "Activity level is flat. Clients are delaying capital spending decisions." (Professional, Scientific & Technical Services)
• "Economy may be stabilizing. Second half looks more positive than first half." (Information)
• "Have begun spending government stimulus funding, and expect conditions to gradually improve in the near future." (Public Administration)
• "Occupancy levels continue to increase at a slow pace." (Accommodation & Food Services)
• "Activity is still slow and little has changed since last month." (Wholesale Trade)

Simply put, this is an improving series and adds further evidence that the worst is over.

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Non-Manufacturing ISM Increases

From the Institute for Supply Management:

Business activity in the non-manufacturing sector increased at a faster rate in May 2007, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

What respondents are saying:

* "Business activity remains stable. Fuel prices remain outrageously high." (Professional, Scientific & Technical Services)
* "Commercial business is solid...retail very competitive...inverse yield curve squeezing margins." (Finance & Insurance)
* "Increasing pressure on cost reduction as energy costs remain high." (Accommodation & Food Services)
* "Housing market is still depressed." (Construction)
* "Business growing." (Management of Companies & Support Services)

Let's look a little deeper in the numbers.

This is the second month in a row the overall index has increased. However, the overall index has fluctuated between a high of 59.7 and a low of 52.4. In other words, the index really hasn't moved much in a year. Today's overall number is the 12-month high. But I would like to see the index jump above this range before I get excited about a big move. However, the number does indicate business is expanding at about the same pace as the last 12 months.

New orders increased for the second month in a row. This is also good news. But the month-to-month increase was from 53.8 to 55.5 to 57.4. In other words, it's an increase but not a really big increase. This number falls in with the overall activity indicator. It's good, but doesn't indicate a huge increase. It's more business as usual.

Here's some unwelcome news:

Prices paid by non-manufacturing organizations for purchased materials and services increased in May for the 48th consecutive month. ISM's Non-Manufacturing Prices Index for May is 66.4 percent, 2.9 percentage points higher than April's index of 63.5 percent. In May, the percentage of respondents reporting higher prices decreased by 1 percentage points to 41 percent as compared to April. The percentage indicating no change increased from 54 percent in April to 55 percent in May. The percentage of respondents noting prices decreased remained the same at 4 percent in May.

This is the kind of news that keeps the Fed on its toes.

And exports look good:

Orders and requests for services and other non-manufacturing activities to be provided outside of the United States by domestically based personnel in May increased for the second consecutive month after a month of contraction. The New Export Orders Index for May is 66 percent, compared to April's index of 55.5 percent. Of the total respondents in May, 69 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.

Sometime over the last few months when earnings season was in full swing, there was an emerging consensus stating exports and foreign markets would help US based companies weather an economic slowdown in the US. This was one of the reasons given for the strength of earnings during the first quarter. This number from the ISM report adds strength to that argument.

Short version -- this report seems in indicate the status quo will continue. We didn't see a big gain, but we didn't see a big loss.

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ISM Services Up

From the Institute for Supply Management:

ISM's Non-Manufacturing Business Activity Index in April registered 56 percent compared to the 52.4 percent registered in March, indicating a faster rate of growth in business activity in April. The implication is that non-manufacturing business activity is continuing to increase for the 49th consecutive month. Thirteen industries reported increased business activity, and two reported decreased activity for the month of April.

The industries reporting growth of business activity in April are: Arts, Entertainment & Recreation; Accommodation & Food Services; Transportation & Warehousing; Utilities; Information; Public Administration; Other Services*; Retail Trade; Real Estate, Rental & Leasing; Finance & Insurance; Construction; Educational Services; and Health Care & Social Assistance.

The industries reporting contraction of business activity in April are: Wholesale Trade; and Professional, Scientific & Technical Services.

Looking at an average of the last 4 months, the overall activity index is about 54, which puts the average in the expansion area.

Notice in the second paragraph above the large number of industries experiencing an expansion versus the number that are experiencing a contraction.

In addition, there were positive anecdotal comments about the overall economic situation:

* "Progressive improvement in the business cycle." (Transportation & Warehousing)
* "We are showing signs of recovery from bad news. Transactions are increasing faster than our normal seasonal increase." (Accommodation & Food Services)
* "Concerned about the rapid increase in energy cost." (Professional, Scientific & Technical Services)
* "The level of business is maintaining an even level at this time. Capital projects are ramping upwards." (Educational Services)
* "Sales in the first three months of the year are slower than expected while pressure to lower prices is increasing." (Wholesale Trade)

These quotes indicate business is getting better and at a faster than expected rate.

The only negative to this report was the prices component:

Prices paid by non-manufacturing organizations for purchased materials and services increased in April for the 47th consecutive month. ISM's Non-Manufacturing Prices Index for April is 63.5 percent, 0.2 percentage point higher than March's index of 63.3 percent. In April, the percentage of respondents reporting higher prices increased by 4 percentage points to 42 percent as compared to March. The percentage indicating no change decreased from 58 percent in March to 54 percent in April. The percentage of respondents noting prices decreased remained the same at 4 percent in April.

While the increase was small (.2), it was still an increase. In addition, notice this is the 47th month of prices paid increases. The increases in productivity for this expansion may be enough to absorb those increases, but the Federal Reserve will still be looking at the overall increase next week.

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ISM Decreases But Still Expansive

From the ISM:

"Non-manufacturing business activity increased for the 47th consecutive month in February," Nieves said. He added, "Business Activity and New Orders increased at a slower rate in February than in January. Employment increased at a faster rate than in January. The Prices Index decreased 1.4 percentage points this month to 53.8 percent. Nine non-manufacturing industries reported increased activity in February. Members' comments in February are mixed concerning current business conditions. The overall indication in February is continued economic growth in the non-manufacturing sector, but at a slower pace than in January."

Overall business activity decreased, but any reading above 50 is considered a sign of expansion.

New orders and the backlog of orders decreased slightly, but far from an alarming rate. The decrease could be accounted for as pure statistical noise.

New export orders increased faster than new import orders. While the US still has an incredibly long way to go until it deals with the trade imbalance, any possible sign of improvement is a good thing.

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ISM Decreases Slightly

Just got back from court, so I thought I would relax by looking at economic numbers. (Now you know I am a complete economics geek.)


From the Institute For Supply Management:

Business activity in the non-manufacturing sector increased at a slower rate in December 2006, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

...

"Non-manufacturing business activity increased for the 45th consecutive month in December," Nieves said. He added, "Business Activity increased at a slower rate in December than in November. Employment, Inventory, Exports and Imports all increased at a faster rate. The Prices Index increased 3.5 percentage points this month to 59.1 percent. Nine of 18 non-manufacturing industries reported increased activity in December. Members' comments in December are generally positive concerning current business conditions. The overall indication in December is continued economic growth in the non-manufacturing sector, but at a slower pace than in November."

Here are the comments from the comments section:

* "Business activity remains strong and is on the upturn." (Finance & Insurance)
* "Housing sales slowing, affecting all areas of business." (Construction)
* "The economy is starting to slow a little bit." (Professional, Scientific & Technical Services)
* "Market remains stable." (Information)
* "Business is steady, some seasonal increases." (Wholesale Trade)

Let's look at these comments in a bit more detail. Over the last month three sub-prime mortgage lenders have either declared bankruptcy or stopped accepting new applications. But these problems have not bled over into other financial services -- at least not yet. In addition, construction is still slowing but with no bleed-through to other areas of the economy. I have to admit, the lack of an impact by the housing slowdown on non-construction economic areas is very perplexing right now.

The overall business activity index has fluctuated between 57.1 and 58.9 over the last three months. That indicates expansion. This month's slight downturn could easily be considered statistical noise.

The prices index has increased for the last three months. This is in-line with the PPI information. This may be another inflation indicator the Fed is worried about.

Imports increased each month for the last 4 months. That's interesting.

That's about it. This report looks pretty good.

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