ISM Non-Manufacturing Index Beats Expectations, Internals Mixed
The Institute for Supply Management's July Non-Manufacutring Index reading was better-than-expected, reaching 52.6 versus a 52 estimate from surveyed economists. New orders, considered a leading indicator for future reports, rose in July. However, a rise in inventories signaled that growth may remain tepid in the coming months.
The headline beat in the index was masked by mixed internal results. The composite index is made of 10 sub-indexes, and each of these can tell a different story of the economy. New orders rose to 54.3 from 53.3 in July, signaling that output in August could climb from current levels in the large service sector. Contrastingly, a rise in inventories from 53.0 to 54.5 could offset future gains, as production gets quelled when companies sell inventories before making new products.
Following the headline beat of the Non-Farm Payrolls report, the employment sub-index of the ISM report showed weakness in the service sector. The employment sub-index fell to 49.3 from 52.3 in June, a huge drop, signaling that service sector employment may not have been as strong as the Bureau of Labor Statistics reported. Lastly, imports fell off of the proverbial cliff, declining an astounding 9 percentage points in July to 44.5 from 53.5 in June.
Recent economic data released in the U.S. likely pointed to a continued period of slow growth, but not an imminent recession. Contrasting internal sub-indexes continue to paint a mixed picture of the economy. Markets continued to climb on the data, with U.S. stock indexes climbing to intraday highs. Future data may be needed to confirm if the economy nearing a bottom or if further downside will come following the summer months.
Friday's reports of continued slow growth in the U.S. service sector followed similar indicators from Europe and China. Overnight, China reported that its service sector continued to expand in July, albeit at a slower pace than in June. The Asian nation's non-manufacturing PMI fell to 55.6 in July from 56.7 in June. Also, in Europe, the Eurozone-wide services PMI rose to 47.9 in July from 47.6 in June on expectations of a flat, 47.6 reading. Strength in Germany, France, and Spain were off-set by weakness in Italy and England, though England is not included in the Eurozone reading.
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.