ISM reports second straight month of services economy gains in July

By Jeff Berman, Group News Editor · August 5, 2020

The Institute for Supply Management (ISM) reported today, in its Services ISM Report on Business (formerly the Non-Manufacturing Report on Business) that economic activity in the services sector saw growth for the second straight month in July.

The report’s key indicator—the Services PMI (formerly the Non-Manufacturing PMI)—rose 1 percent, to 58.1 in July (a reading of 50 or higher indicates growth is occurring). This followed an 11.1% increase, to 57.1, in June, which halted a two-month stretch of declines, which was preceded by 122 consecutive months of expansion. ISM noted that June marked the largest single-month percentage increase, for the NMI, going back to its inception in 1997.

The July Services PMI is at its highest level in the last 12 months, topping the 12-month average, of 53.4, by 4.7%.

ISM reported that 15 of the 18 non-manufacturing sectors it tracks saw gains in July.

Most of the report’s equally weighted sub indexes that directly factor into the NMI saw gains in July, including:

business activity/production up 1.2%, to 67.2, growing for the second month in a row, with 14 services sectors reporting growth for the month;

new orders headed up 6.1%, to 67.7, growing for the second straight month, with 14 services sectors reporting growth;

employment contracted for the fifth consecutive month, falling 1%, to 42.1, with five services sectors seeing growth;

supplier deliveries, at 55.2 (a reading of 50 or higher indicates contraction), slowed at a slower rate for the 14th consecutive month

Other notable metrics in the report included: an 8.7% decline in inventories, to 52.0, growing for the second month in a row; a 4.8% decline in prices, down for the fourth straight month; and backlog of orders, at 55.9, up 4% and growing for the second month in a row.

Comments in the report submitted by ISM member respondents reflected the ongoing challenges being presented by the COVID-19 pandemic, while business conditions are seeing some gains.

“We’re still not certain whether or not the students will be coming back in their full capacity due to COVID-19,” said an educational services respondent. “This has caused an influx of ordering safety supplies to prepare for the possibility. We have certainly increased our purchasing in the past month or so by a large amount.” And a real estate, rental & leasing respondent said that COVID-19 interruptions are changing the way business is done.

In an interview, Tony Nieves, Chair of the ISM’s Services Business Survey Committee, explained that the report’s growth, for the second straight month, was far from certain, given the civil unrest in many areas of the country and spikes in COVID-19 cases in Florida, Texas, Arizona, and California.

“Activity did increase, but it is not at the pre-pandemic levels,” he said. “But it is still reflecting some decent growth. The growth in new orders and business activity goes back to just how low things were in March through May, and those numbers reflect the growth [with the economy reopening in June and July]. Again, we are not at pre-pandemic levels, but it seems like we are on a path to recovery, unless something else is going to try to derail it in the interim.”

While there is a path to recovery, Nieves cautioned that economic uncertainty and a general lack of visibility remain intact, moving forward.

What’s more, he noted that the services economy employment outlook has not returned strongly, as the economy is not open at 100% capacity, meaning that 100% of unemployed workers will not be returning to their former jobs. Instead, he said, that the number of jobs that will come back will correlate to whatever is the level of a company’s capacity or operating level.

As for the future, Nieves explained that aside from COVID-19, noted that while the U.S.-China trade war has not been front and center, of late, it needs to be monitored, as do geopolitical issues, too. He said these things are considered variables, which need to be watched to see their impacts on a global level.

August 5, 2020