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  The ISM Non-Manufacturing Index Declined to 56.9 in August
Posted Under: Data Watch • ISM Non-Manufacturing • COVID-19

 
Implications:  The service sector continues to grow out of its second quarter COVID-19 slump, once again recording a reading comfortably in expansion territory.  (Remember, readings above 50 signal expansion).  In total, fifteen of eighteen companies reported growth in August, while three reported contraction.  The two most forward-looking indices – business activity and new orders – turned lower in August, following record high readings in July.  New orders activity is being driven by both a return of activity (to quote one survey respondent "business activity is thriving again...") and expectations for a strong holiday season on the horizon ("gearing up manufacturing and distribution for an extraordinary e-commerce Christmas").  Business activity remains elevated, with customers returning to work and the new orders activity requiring ramp ups to fulfill demand.  Two indices rose in August; supplier deliveries and employment.  It's worth noting that the supplier deliveries index increases when companies report longer delivery delays (typically a sign of more demand than companies can fill in a timely manner), and the turn higher in the index comes in contrast to supply chain easing seen over the last three months. The improvements since May have largely been a reflection of production coming gradually back online, while the tick higher in August reflects increasing demand outpacing the return back to activity, resulting in longer lead times.  The employment index continues to remain in contraction territory, but moved higher to 47.9 from 42.1 in July.  While we do anticipate a slowdown in the pace of jobs growth when we get the employment report this Friday, we are currently forecasting 1.670 million nonfarm payroll jobs were added last month.  With most COVID-19 cases continuing to trend lower across the country, progress in job gains look likely to continue for the foreseeable future.  On the inflation front, the prices paid index rose to 64.2 from 57.6 in July.  Cleaning products, medical supplies (like N95 masks), and construction contractors continue to lead the index higher.  Taken as a whole, today's report further confirms what the preponderance of the economic reports have been telling us over recent months, the recovery has started and the trend is higher.  Nobody knows with certainty where exactly things will go from here, be it COVID-19 or the elections.  What we do know is that our ability to identify, respond to, and treat cases as they arise continues to strengthen with each passing day.  And regardless of the outcome in November, the entrepreneurs and innovators aren't going to stop driving innovation – and the U.S. - forward.

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Posted on Thursday, September 3, 2020 @ 12:27 PM • Post Link Share: 
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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
 
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