Econoday Economic Report: ISM Non-Mfg Index August 3, 2012

2012 Economic Calendar

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ISM Non-Mfg Index

Released On 8/3/2012 10:00:00 AM For Jul, 2012

	Prior	Consensus	Consensus Range	Actual
Composite Index - Level	52.1	52.0	51.5 to 53.0	52.6

Highlights
The great bulk of the nation's economy is moving steadily forward, based on ISM's non-manufacturing sample where the composite index rose 5 tenths to 52.6. This level isn't that strong but details in the report are encouraging led by new orders which rose 1 full point to 54.3. This is right in line with the 4-month average of 54.2. Business activity, which is an indication on output of goods and services in the sample, really took off, up 5.5 points from a depressed June level to 57.2 in July for the best rate of monthly growth since March.

A negative in the report is a 3 point fall in the employment index to 49.3, a sub-50 level, which is the first of the year and which indicates that the ISM's sample, on net, cut back on their workforce in July. But the rise in new orders hints at a snap back for this reading in the months ahead.

Other details include a bounce back in new export orders but a fall in total backlogs. But these factors are of less importance in the non-manufacturing sector compared to the manufacturing side. Input prices firmed slightly in the month following two months of slight contraction. The Dow is moving to opening highs following this report.

Market Consensus before announcement
The composite index from the ISM non-manufacturing survey in June slipped to 52.1 versus 53.7 in May but it was still safely above the 50 level under which monthly contraction is indicated. The new orders index was the most important component and it posted at 53.3, compared to 55.5 the prior month.

Definition
The non-manufacturing ISM surveys more than 375 firms from numerous sectors across the United States, including agriculture, mining, construction, transportation, communications, wholesale trade and retail trade. The non-manufacturing composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the non-manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation. A reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries. However, slower deliveries are a plus for the economy—indicating demand is up and vendors are not able to fill orders as quickly. Why Investors Care

The ISM non-manufacturing survey does not compile a composite index like its manufacturing cousin. The business activity index, which is actually akin to the production index in the manufacturing survey, is widely followed as the key figure from this survey.
Data Source: Haver Analytics

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