The ISM survey of business activity in the services, construction, and government sectors of the economy fell more than expected. While still in expansion territory this is the weakest reading in a year and was led by declines in new orders.
The employment component fell but is still above the recent lows seen in April and in-line with the 12-month average. This component has had strong correlation with the total nonfarm payrolls ex-manufacturing growth in the past. This would normally suggest a slight downside bias to current expectations for 180k non-farm payroll growth tomorrow. But this survey has been modestly more volatile than payrolls -- looking at 12-month averages suggests payroll growth will remain close to the current 12-month average, 187k.
The ISM Non-Manufacturing Index
FELL by 3.5 points in July to 53.9%, compared with market expectations for a decline to 56.9%. The July reading was slightly lower than its average level over the past 12 months. That said, the current level of the index indicates that the economy is growing modestly.
Quotes from Survey Respondents:
- New Orders fell by -5.4 points to 55.1%. Order Backlogs declined slightly and Inventories increased moderately.
- Employment fell by 2.2 points to 53.6% , indicating that upcoming employment report will likely be lower than last month's print.
- Prices increased by 3.6 points to 55.7%.
- "A typical and expected midsummer slowdown in hiring activity by employers is causing a normal slowdown in business for this time of year. We expect a sharp ramp-up of business activity over the next three months." (Management of Companies & Support Services)
- "Quiet time of year for us, with focus on busy August through December peak season to come." (Information)
- "Through the first half of 2017, revenue and profits are ahead of projections and holding steady. Minimal expansion expected through year end 2017." (Finance & Insurance)
- "Business volume slowed some in June." (Health Care & Social Assistance)
- "We are still experiencing an increased activity level over last month, though the rate of growth seems to be flattening somewhat." (Mining)
- "Pork bellies trending higher in price. Beef, specifically grilling meats, still remain a bit high, even after the Fourth of July holiday. Some Asian vegetables are in short supply due to local grower issues.": (Accommodation & Food Services)
- "Business in third quarter is looking up, but it may be delayed from slower than expected second quarter. The next couple of months will determine the outcome." (Professional, Scientific & Technical Services)
- "Overall business conditions remained stable and flat from the previous month." (Retail Trade)
- "In general, a very stable sales month; flat to very slight increases in activity. Some slight price declines for products." (Wholesale Trade)