ISM Non-Manufacturing: Continued Growth In August

The Institute of Supply Management (ISM) has now released the August Non-Manufacturing Purchasing Managers' Index (PMI), also known as the ISM Services PMI. The headline Composite Index is at 56.4 percent, up 2.7 from 53.7 last month. Today's number came in above the Investing.com forecast of 54.0 percent.

Here is the report summary:

“The NMI® registered 56.4 percent, which is 2.7 percentage points higher than the July reading of 53.7 percent. This represents continued growth in the non-manufacturing sector, at a faster rate. The Non-Manufacturing Business Activity Index increased to 61.5 percent, 8.4 percentage points higher than the July reading of 53.1 percent, reflecting growth for the 121st consecutive month. The New Orders Index registered 60.3 percent; 6.2 percentage points higher than the reading of 54.1 percent in July. The Employment Index decreased 3.1 percentage points in August to 53.1 percent from the July reading of 56.2 percent. The Prices Index increased 1.7 percentage points from the July reading of 56.5 percent to 58.2 percent, indicating that prices increased in August for the 27th consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. The non-manufacturing sector’s rate of growth rebounded after two consecutive months of cooling off. The respondents remain concerned about tariffs and geopolitical uncertainty; however, they are mostly positive about business conditions.” [Source]

Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows the Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

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The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 61.5 percent is up 8.4 from a seasonally adjusted 53.1 the previous month.

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For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualize the short-term trends.

Theoretically, this indicator should become more useful as the time frame of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains our intention to keep this series on the radar.

Here is a table showing the trend in the underlying components.

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