Saturday, 19 of August of 2017

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Purchasing Managers Index — Nonmanufacturing

August 3, 2017

The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of non-manufacturing firms — which largely consists of services. The business activity index fell 4.9 points in July to 55.9 after having risen 0.1 point in June.   In July, 15 of 17 service-sector  industries  reported expansion.  Good, solid, broad-based growth, although at a slower pace than in June.  At its July level the non-manufacturing index equates to GDP growth of 1.9%.

The orders component  declined 5.4 points in July to 55.1 after having risen 2.8 points in June.  Orders continued to flow in at a healthy pace in July, but at a slower pace than in the previous month.

The ISM non-manufacturing index for employment declined 2.2 points in July to 53.6 after having fallen 2.0 points in June.  However, this series has been fairly volatile in other recent months with big increases followed by big declines a rather common occurrence.  Jobs growth should continue in upcoming months at about the same pace we  have seen of roughly 170 thousand per month.

Finally,  the price component climbed 3.6 points in July to 55.7 after having risen 2.9 points in June.   While volatile on a month to month basis, prices paid by service sector firms are rising at a moderate pace.

Stephen Slifer

NumberNomics

Charleston, SC


Purchasing Manager’s Index

August 1, 2017

The Institute for Supply Management’s index of conditions in the manufacturing sector fell 1.5 points in July to 56.3 after having jumped 2.9 points in June.  The June level of the index of 57.8 e the highest level for this index in more than two years (August 2014).  Clearly manufacturing activity is in a gradual recovery.  If the PMI for July  is annualized it corresponds to a 4.1% increase in GDP growth.  If one uses the January through June average PMI it would imply a 4.1% increase in GDP growth this year.

It is important to recognize that the overall index is the compilation of a number of different components — production, orders, employment, supplier deliveries, inventories, prices, the backlog of orders, exports, and imports.

The orders component declined 3.1 points in July to 60.4 after having risene 4.0 points in June to to 63.5.  The February level of 65.1 was the highest levels for the order increase in seven years.   The ISM indicates that an orders index above 52.3  is consistent with an increase in the Census Bureau’s series on factory orders.  It appears that orders have really begun to accelerate which will boost factory production in the months ahead.

In addition to orders, actual production has behaved in a similar manner.  Thus, the pace of production has already begun to climb and given the rise in orders it should gather momentum as we move throughout 2017.  The production index declined 1.8 points in July to 60.6 after having umped 5.2 points in June.  A level above 51.4 is consistent with an increase in the Federal Reserve’s industrial production figure.

The employment index declined 2.0 points in July to 55.2 after having risen 3.7 points in June.  The March level of 58.9 was the highest level for this index since  June 2011.  The employment index had been right about at the break-even point of 50.0 for almost a year but has now broken out to the upside in the  past six months. While the economy is currently cranking out about 170 thousand jobs per month, the factory sector thus far has produced few of them.  The jobs are coming from services and construction.  An ISM index above 50.5 is consistent with the Bureau of Labor Statistics data on manufacturing employment.  Hopefully, 2017 will bring with it at least some moderate increases in factory jobs.

The backlog of orders fell 2.0 points in July to 55.2 after having risen by a like amount in June.  The backlog had been  fairly steady for a long while, but now orders are rising and the backlog has begun to climb in the pasts four months which will encourage still faster production in the months ahead.

The prices paid component jumped 7.0 points in July to 62.0 after having fallen 4.5 points in June.  The March level of 70.5 was the highest reading since May 2011.  Prices continue to climb, but not as rapidly as in the early months of this year when oil prices were on the rise .  A price index level above 52.4 is consistent with an increase in the BLS producer prices index for intermediate materials.

We believe that the economy is  expanding at a moderate pace.  We expect GDP growth of 2.3% in 2017 and 2.8% in 2018.  During that period of time the manufacturing sector will once again begin to expand slowly.

Stephen Slifer

NumberNomics

Charleston, SC