The ISM Non-Manufacturing Index Declined to 51.4 in August


Implications:  The service sector expanded for a 79th consecutive month in August, though at a slower pace than in recent months.  Remember, readings above 50 signal expansion, so despite the decline in most major measures of the service sector, all still showed growth from July.  Expansion continued to be broad-based in August, with eleven of eighteen industries reporting growth, while seven reported contraction.  The business activity and new orders indexes led the headline index lower, but even with the slowdowns in the pace of expansion, both measures have shown healthy growth to date in 2016.  And with continued employment gains, rising wages, and healthy consumer spending, growth prospects remain positive for the months ahead.  On the employment front, nine of eighteen industries reported increased hiring activity in August, while five reported reductions. This is a slight tick down from what we saw in July, when non-farm payrolls rose 275,000, and reinforces our expectations that the August employment report will revised higher in the months ahead.  And, given the sustained activity in new orders and business activity, we expect the employment index to continue showing healthy growth in the months ahead.  Don't expect gains of 250,000+ jobs to be the norm in the coming months, but employment gains north of 150,000 should continue to signal a tight labor market and give the Fed confidence that the job market is giving a green light for continued rate hikes.  On the inflation front, the prices paid index was almost essentially unchanged at 51.8 in August compared to a reading of 51.9 in July. Declining costs for beef, eggs, and computers were largely offset by rising prices for semi-trucks, cheese, and coffee.  As a whole, today's ISM report shows an economy continuing to expand at a modest pace, and no recession signs in sight.

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Posted on Tuesday, September 6, 2016 @ 11:30 AM

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.