ISM Non-Manufacturing PMI: Another Slow Month

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The non-manufacturing PMI from the Institute of Supply Management will be coming out later today.

According to the estimates from economists, the non-manufacturing sector or the services sector is set to rebound from the declines in July.

For the month of August, the non-manufacturing index is forecast to rise to 54.1. This marks a modest increase after the index fell to 53.7 the month before.

ISM Non-manufacturing PMI
ISM Non-manufacturing PMI

The services sector has been holding up fairly well compared to the manufacturing sector. Still, the recent trends indicate that momentum is slowing there too. In July, the ISM non-manufacturing sector slid to a three-year low.

The declines were mostly due to the escalating trade war. A slowdown in the services sector could spell trouble due to the fact that the US economy is heavily dependent on the services or non-manufacturing sector.

According to ISM, the services or the non-manufacturing sector accounts for 88% of the GDP, compared to just 12% from the manufacturing sector.

The respondents from the July survey, however, said that despite some hiccups, business is expected to grow into the second half of the year. More than 50% of the sectors participating in the survey gave an optimistic picture of the economy.

ISM NMI PMI – Sectors to Focus On

The data from July pointed to some nervousness in the construction, retail, and mining sectors. All the three sectors reported headwinds.

For the construction sector, the tariffs were squarely blamed with customers looking for more discounts due to the fluctuations in the mortgage rates. Meanwhile, the oil and gas industry were also treading cautiously.

The oil and gas services sector has been particularly impacted due to the uncertain global economic outlook. This is evident from the weaker oil prices. The impact of a slowdown threatens the global demand for oil and gas products. As a result, the services sector in the said industry also expects to see some declines.

Finally, the mining sector also cautioned alarm. The mining sector is often capital intensive, the firms in these sectors noted that the industry was quite dependent on China and other Asian markets.

The business activity/production subsector shows the biggest decline, falling 5.1 points in July. This is another aspect to bear in mind when looking at the data for August.

IHS Markit’s flash Services PMI Decline in August

IHS Markit released the flash services PMI report for August. The report was disappointing as the services industry, as measured by Markit, weakened during the month. This was indicative of the July data from ISM.

The flash services PMI rose at the slowest rate in the new orders sub-sector in over a decade. The overall flash composite PMI was down to 50.9, marking a three-month low.

If the data proves to be correct, we could anticipate some declines in the non-manufacturing services sector.

Impact of the Non-Manufacturing PMI Report

The non-manufacturing PMI report will cover the month of August. With this, investors will have a fairly clear picture of the US economy during the first two months of the third quarter.

A slowdown in the services sector during the first two months of the third quarter could potentially see lower estimates on the Q3 GDP. By the end of the second quarter, the quarterly average of the non-manufacturing PMI fell from 57.5 in Q1 to 55.83 in Q2.

Q1

Q2

Q3

Month PMI Month PMI Month PMI
Jan 56,7 Apr 55,5 Jul 53,7
Feb 59,7 May 56,9 Aug 54,1
Mar 56,1 Jun 55,1 Sep
Average 57,50   55,83   53,90

Even if the data matches the estimates of 54,1 the third quarter average remains well below Q2 and Q1 average numbers. Thus, in general, we will have to see a stronger headline reading of the NMI PMI in order for any signs of a pickup in growth in the third-quarter period.

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