The Institute for Supply Management™ reported that economic activity in the non-manufacturing sector of the U.S. economy grew at a much slower pace in August, but still marked the eighth consecutive month of expansion.
The Non-manufacturing ISM Report on Business® registered 51.5 percent in August, a decline of 2.8 percentage points from the July reading of 54.3 percent. Business activity and new orders slowed, with those indexes registering 54.4 percent and 52.4 percent, respectively, both declining by a wide margin from the month-prior readings. After showing one month of growth, the Employment Index fell into contraction once again, registering 48.2 percent, a 2.7 percent decrease from the July reading. Prices, however, increased significantly, jumping 7.6 percentage points month-over-month to 60.3 percent in August.
Nine industries reported expansion, while eight reported contraction. Comments from respondents were mixed and have been for some time. A few key comments from the report are:
- “Continuing to show signs of positive growth” (Construction)
- “We are anticipating a slowdown in the third and fourth quarter of this year, with no signs of recovery for the next few quarters.” (Professional, Scientific & Technical Services)
- “Purchasing has been cut back to meet expenses. As a result, some segments of company revenue have been negatively impacted.” (Retail Trade)
Commodities
Several commodities were reported to have increased in price, mostly in the food and energy segments. No commodities were reported to have decreased in price.
Inventories
Inventories grew in August for the fifth consecutive month as the Inventories Index registered 53.5 percent. More troubling was the Inventory Sentiment Index, which registered 60 percent, one percentage point higher than the July reading of 59. The report notes, “This indicates that respondents believe their inventories are too high at this time.”
Conclusion
Given what appears to be a jump in commodity prices, without a real increase in demand, perhaps the Fed might reconsider its extremely loose monetary policy. It is possible that the excess liquidity and low interest rates fostered by the central bank as a means to jumpstart the economy are being used to speculate on commodities, rather than invest in the economy.
For more on the ISM service sector survey, please click on the “Economic Growth Statistics” page in the menu bar above or under Pages in the left-side column.
Gregg D. Killoren
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