US services sector index comes in slightly below forecasts

B.C. | ShareCast | 03 Aug, 2011 15:51 - Updated: 16:09 | | |

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The Institute for Supply Management’s (ISM) service sector purchasing manager’s index for the month of July retreated by 0.6 percentage points, to 52.7.

Consensus estimates were for a reading of 54.0.

13 non-manufacturing industries, out of a total of 18, reported growth in July. According to the chair of the survey committee, “respondents' comments remain mixed; however, for the most part they indicate that business conditions are flattening out."

The ISM has highlighted the following as the most relevant responses made by respondents:

"Sales and customer traffic recovered slightly, pulling even with last year after trending lower for several months. Discretionary spending per customer has continued to decline in all areas of the operation." (Arts, Entertainment & Recreation)

"Sales volumes are steady. Input costs are increasing." (Agriculture, Forestry, Fishing & Hunting)

"Business outlook remains steady, but concerns about the second half of the year remain." (Professional, Scientific & Technical Services)

"Municipal government has not bounced back at a similar pace to the private sector." (Public Administration)

"New home construction is still very slow. Repair and remodel is the only bright spot." (Wholesale Trade)

"Commodities cooling off and dropping a bit." (Retail Trade)

DETAILS:

The production sub-index rose to 56.1 (from 53.4), the new orders sub-index to 51.7 (from 53,6), the employment sub-index to 52.5 (from 54.1), supplier deliveries to 50.5 (from 52.0), inventories to 56.5 (from 53.5), prices paid to 56.6 (from 60.9), order backlogs to 44.0 (from 48.5), new export orders to 49.0 (from 57.0) and imports to 47.5 (from 46.5).

ANALYSIS:

Commenting on the data after it came out, economists at Barclays have said that, "Given the weakness of growth in H1, the declines in the manufacturing and non-manufacturing ISMs are a disheartening start to H2, although there remain solid reasons to expect growth to rebound modestly, including a recovery in auto output as supply chains are restored and a boost to real incomes as headline inflation pressures ease. Still, taken alongside last week's negative GDP revisions and the soft tone to recent employment reports, the weakening in the ISM surveys adds to the gloomy economic backdrop facing policymakers."

AB

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