ISM Non-Manufacturing Index

ISM Non-ManufacturingThe ISM Non-Manufacturing Index helps determine the overall economic strength of the services sector.  Components evaluated are employment, business activity, new orders, and supplier deliveries, which are then compiled into an index.  The nonmanufacturing sector represents a much larger share of the overall U.S. economy when compared to the manufacturing sector, making up approximately 80%; the sector’s economic weight makes it an important sign of growth, stagnation, or contraction. Readings above 50 indicate expansion while readings below 50 signal decline.

In June, the ISM Non-Manufacturing Index jumped 11.7 points to 57.1 from the May reading of 45.4. This was a 25% increase from the previous month and beat market forecasts which expected an index value of around 50.1. The rise this past month registered as the largest single-month percentage-point increase ever recorded and follows the reopening of businesses after the countrywide lockdown. With the overall Non-manufacturing Index now well over a value of 50, economic activity in the non-manufacturing sector is starting to grow again after two consecutive months of contraction.

The ISM Non-manufacturing Index value of 57.1 for the month of June marks the highest month to month increase ever recorded in the index’s history. This significant increase follows only two months after the index witnessed its greatest month to month decrease, falling by 10.7 points from March to April. Now that businesses are completely open and can operate with minimal limitations, there has been a monumental increase in the Business Activity Index which registered 66% for the month of June. On top of this, both the New Orders Index and Employment Index experienced increases of 19.7 percentage points and 11.3 percentage points from their readings in the month of May.

The Supplier Deliveries Index, which is the only index that is inversed, decreased this past month indicating that the economy is improving, and customer demand is rising. In result of increasing demand, the Prices Index also rose by 6.8 percentage points with 14 non-manufacturing industries reporting growth during the month of June. The majority of these increases were expected as the economy recovers and gets back on track, however it was unknown how fast it these indexes would return to normal levels. As the summer months promote warm weather and economic activity, it is projected that Non-Manufacturing Index levels may fall slightly but will remain above an index level of 50 as economic growth is expected to continue.

ISM Non-Manufacturing

July 6, 2020