Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 56.0 percent, signaling faster growth than last month's 52.2 percent. The July number matches the interim high in February and beat the Investing.com forecast of 53.0 percent and Briefing.com's 53.2 percent consensus.
Here is the report summary:
The NMI™ registered 56 percent in July, 3.8 percentage points higher than the 52.2 percent registered in June. This indicates continued growth at a faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased substantially to 60.4 percent, which is 8.7 percentage points higher than the 51.7 percent reported in June, reflecting growth for the 48th consecutive month. The New Orders Index increased significantly by 6.9 percentage points to 57.7 percent, and the Employment Index decreased 1.5 percentage points to 53.2 percent, indicating growth in employment for the 12th consecutive month. The Prices Index increased 7.6 percentage points to 60.1 percent, indicating prices increased at a significantly faster rate in July when compared to June. According to the NMI™, 16 non-manufacturing industries reported growth in July. Respondents' comments are mostly positive about business conditions and the overall economy.
Like its much older kin, the ISM Manufacturing Series, I have been reluctant to focus on this collection of diffusion indexes. For one thing, 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 Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.
In my view, the more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index.
For a diffusion index, the latest reading indicates growth at a faster rate than last month and the fastest of the past five months. But this can be an extremely volatile indicator. Thus, I've added a six-month moving average to assist us in visualizing trends.
Theoretically, I believe, this indicator will become more useful as the timeframe 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 my intention to keep this series on the radar.
Here is a link to my coverage of ISM Manufacturing report released earlier this week.
Note: I use the FRED USRECP series (Peak through the Period preceding the Trough) to highlight the recessions in the charts above. For example, the NBER dates the last cycle peak as December 2007, the trough as June 2009 and the duration as 18 months. The USRECP series thus flags December 2007 as the start of the recession and May 2009 as the last month of the recession, giving us the 18-month duration. The dot for the last recession in the charts above are thus for November 2007. the "Peak through the Period preceding the Trough" series is the one FRED uses in its monthly charts, as illustrated here.