Services Sector Grows Less Than Expected

by: Bespoke Investment Group

Wednesday's ISM Non Manufacturing report for the month of July showed solid growth, but less than what analysts were expecting. With a reading of 55.5, the headline index declined one point from last month's level of 56.5 and was 0.4 points below consensus expectations (55.9).

As shown in the top chart below, the ISM Non Manufacturing index has rebounded off its lows earlier this year, but is still well below its highs from late 2014 and early 2015. For the sake of comparison, the average monthly reading of the ISM Services index throughout the current economic expansion has been a reading of 54.7.

The second chart below shows the combined ISM reading for the month of July based on the weights of the manufacturing and non-manufacturing sectors in the overall economy. This month's reading ticked down a point from 56.1 down to 55.1, which is a half point above the post-recession average of 54.6.

The table below breaks down this month's report by each of its individual components. Breadth was generally negative in this month's report with only four components increasing on a m/m basis and just one increasing (Import Orders) on a y/y basis. The biggest increases on a m/m basis were in Backlog Orders and Export Orders, while Prices Paid saw the largest decline. On a y/y basis, the Employment component saw the largest decline.