The ISM non-manufacturing index edged up to 53.3 (consensus 51.0) in August, up from 52.7 in July. The key metrics of the report were close to unchanged and show modest growth in new orders, business activity, and employment. Two of the indexes that showed the strongest gains were export orders and imports, rising 7.5pts and 6.0pts respectively. Neither of these series is included in the headline ISM non-manufacturing composite, but they still help point to at least stable conditions in service-sector conditions.
Of the main indexes included in the ISM non-manufacturing report: business activity (55.6 from 56.1) and employment (51.6 from 52.5) slipped, but new orders (52.8 from 51.7) edged higher. The supplier deliveries index (53.0 from 50.5) also increased, contributing to the rise in the headline composite index. If we compare this to the ISM manufacturing report released last week (see chart), conditions appear to be just a bit stronger in the service sector. In particular, new orders have been trending just above 50, whereas in the manufacturing report orders have been just below 50 for the past two months.
Still, the anecdotal comments from ISM respondents show that businesses are becoming increasingly cautious. One profession/technical services firm noted “that business is holding, but looking weaker toward fourth quarter.” A management company said “business climate uncertainty is increasing”. These comments suggest that businesses will be hesitant in ramping up either investment or hiring activity throughout the remainder of this year.
Bottom Line: The ISM service-sector index edged higher in August, but growth appears modest and businesses remain uncertain about future conditions.
Ryan Wang
HSBC Global Research