TEMPE, Ariz. – The U.S. non-manufacturing sector shrank in July for the second month in a row, according to a report today from the Institute for Supply Management.
The trade group’s Non-Manufacturing Index (NMI) – a composite index launched this year to follow the service and other non-manufacturing businesses that make up nearly 90 percent of the U.S. economy – “increased 1.3 percentage points in July to 49.5 percent, indicating contraction for the second consecutive month in the non-manufacturing sector,” wrote Anthony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee and senior vice president of supply management for Hilton Hotels Corp.
The index had been expected to rise to 48.8 percent last month – from its June reading of 48.2 percent – based on the median estimate from Bloomberg News survey of 72 economists. (Their July estimates ranged from 47 to 52.5 percent.)
Fifty percent is the neutral value for the NMI; higher values indicate the economy is expanding while lower values indicate contraction. The index, which debuted in January at 44.6 percent, so far has exceeded that neutral value only in April and May.
Of the 18 industries tracked by the NMI, nine reported growth in July, led by real estate, rental and leasing; arts, entertainment and recreation; and other services, the ISM said. Also reporting growth were the professional, scientific and technical services; education; utilities; construction; accommodation and food services; and health care and social assistance sectors.
Reporting contractions last month were the finance and insurance; public administration; wholesale trade; information; transportation and warehousing; and retail trade categories.
Meanwhile, the ISM’s older Non-Manufacturing Business Activity Index fell 0.3 percentage points compared with June to 49.6 percent. Eight of the sectors tracked by the index reported increased activity, four saw no change from June and six saw activity decrease in July.
Among index components, Nieves said, “The New Orders Index decreased 0.7 percentage point to 47.9 percent and the Employment Index increased 3.3 percentage points to 47.1 percent,” indicating that payrolls continued to shrink, though not as quickly as in June.
“The Prices Index decreased 3.7 percentage points to 80.8 percent in July, indicating a slower rate in price increases than in June,” he said. Concerns over raw-materials costs remained widespread, however, as prices rose for nearly every commodity cited in the survey.
“Members’ comments in July indicate concern about inflationary pressures and the effect on the economy,” Nieves added. “Respondents’ comments are mixed about business conditions and vary by industry and company.”
For instance, a respondent in wholesale trade said that, “while still positive, the overall outlook for 2008 for our company is not as high as earlier in the year.” A respondent in finance and insurance said “our business remains at about the same level as the previous month, with continued focus on cost reduction.” Yet a respondent in professional, scientific and technical services noted that “governmental spending for services is up this period.”
The report “is consistent with the overall economy still languishing over the medium term,” Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit, told Bloomberg News.
The Institute for Supply Management, the publisher of Inside Supply Management magazine, produces monthly Reports on Business for the manufacturing and non-manufacturing sectors. Additional information is available at www.ism.ws.
