July 2014 ISM Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that expansion of economic activity in the U.S. manufacturing sector picked up speed (to the fastest pace in three years) in July. The PMI registered 57.1 percent, an increase of 1.8 percentage point from June's 55.3 percent (50 percent is the breakpoint between contraction and expansion). ISM’s manufacturing survey represents under 10 percent of U.S. employment and about 20 percent of the overall economy.

Jumps in the new-orders, production and employment sub-indices were the main sources of support for the expansion. Interestingly, the PMI’s rise appears to have resulted more from the seasonal adjustment applied to the new orders sub-index than from genuine improvement in activity. The not-seasonally adjusted new orders value for July was tied with June’s value at the lowest level since January, but the seasonal adjustment value pushed the new orders sub-index to the highest value since December.

“Comments from the panel are generally positive,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, “while some indicate concern over global geopolitical situations.”

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Wood Products contracted in July thanks to shrinking new, backlogged and export orders. Paper Products expanded on the back of widespread support among the sub-indices.

The pace of growth in the non-manufacturing sector -- which accounts for 80 percent of the economy and 90 percent of employment -- jumped to a new, all-time record. The NMI registered 58.7 percent, 2.7 percentage points higher than June’s 56.0 percent. Two sub-indices in the NMI -- the Business Activity Index (“Overall activity” in the table below) and the New Orders Index -- have good correlations to the economy; both expanded more quickly in July, along with employment and imports.

“Respondents’ comments indicate that stabilization and/or improving market conditions have positively affected the majority of the respective industries and businesses,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. 

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Real Estate and Construction expanded in July, while Ag & Forestry was unchanged.

Commodities up in price included construction labor, diesel, paper, paper products, and lumber. Natural gas was down in price; some respondents indicated paying more for gasoline, while others paid less. Wood pallets were once again in short supply.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.