Non-manufacturing activity in August turned in a very strong performance, according to the Non-Manufacturing Report on Business, which was issued by the Institute for Supply Management (ISM) today.
The index ISM uses to measure non-manufacturing growth—known as the NMI—came in at 56.4 (a reading of 50 or higher indicates growth is occurring), which was a 2.7% improvement over July’s 53.7 the lowest NMI reading going back to August 2016. This reading represents the 115th consecutive month of NMI growth, with August’s NMI down 1% compared to the 12-month average of 57.4.
ISM reported that 13 non-manufacturing sectors grew in August, including: Real Estate, Rental & Leasing; Accommodation & Food Services; Public Administration; Retail Trade; Utilities; Construction; Professional, Scientific & Technical Services; Other Services; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Finance & Insurance; Health Care & Social Assistance; Arts, Entertainment & Recreation; Information; Mining; and Management of Companies & Support Services. The only industry reporting a decrease is Wholesale Trade, said ISM.
The majority of the report’s key metrics saw gains in August, including:
Themes in the report submitted by ISM member respondents focused on various topics, including business conditions, tariffs, and the economy.
A food services respondent said that tariffs are affecting the cost of goods on all items imported from China, noting that his company experienced a 10% increase on Chinese ingredients, effective August 1. And an agriculture, forestry, fishing and hunting respondent said business conditions were generally good, with volumes near expectations, while noting that commodity volatility is creating some challenges.
ISM Non-Manufacturing Business Survey Committee Chair Tony Nieves said in an interview that the report was positive, especially coming off of two months of declines.
“Last month, the NMI was at its lowest point in almost three years, and this was clearly a bounce back,” he said. “It would have been even stronger, but the employment held it back, while still growing, and supplier deliveries were quicker. On the employment side, some of it has to do with timing in the summer months, as companies hire less and people are on vacation. With deliveries, there was reduced volume in the prior months, which helped to ease the capacity constraints we had going in. That can be seen in the increased availability of trucks, which was not the case in the past.”
In terms of what is driving non-manufacturing activity, Nieves pointed to real estate, rental and leasing, and public administration as some of the leading contributors to GDP for the sector.
“Timing-wise, there is the start of the school year in late August and early September, with people re-locating, buying, and doing other things before school starts, which helped to explain the low August NMI reading,” he said. “Also the fiscal period for government spending typically runs from September to September in most municipalities, which is also a contributing factor, coupled with retail activity gearing up ahead of the holiday season.”
When asked about the non-manufacturing outlook for the balance of 2019, Nieves said it is likely that business activity/production and new orders levels may come down somewhat, with a possible increase in employment, and a slowing in deliveries, which are expected to be in range with current levels.