Report On Business® Roundup: August Services PMI®
The summary of Steve Miller, CPSM, CSCP of the Services ISM® Report On Business® data for August was not overly celebratory — but considering the recent trend, investors and supply managers will take it.
“You never want to say anemic growth, but it showed slow growth, especially compared to recent years,” the Chair of the Institute for Supply Management® Services Business Survey Committee, told a conference call of reporters on Thursday.
The Services PMI® of 51.5 percent was not a gangbuster figure, but it increased 0.1 percentage point compared to July and indicated growth for a second straight month, ending a recent seesaw between expansion and contraction. Markets ticked up temporarily before creeping back down amid concerns over recent employment data and anxiety over Friday’s federal jobs report. The Report On Business® offered little encouragement on employment; more on that in a moment.
However, it was an overall positive report for a month that can be somewhat unpredictable for the services sector, as consumers’ vacation and experience spending tend to taper as school resumes. “It suggests that the economy on the services side is about where it’s been for the past many months; we don’t see any deterioration there,” Bloomberg analyst Michael McKee said after the data was released.
McKee continued by citing the New Orders Index, which increased 0.6 percentage point to 53 percent. Among the 10 subindexes, eight were in expansion territory; the Business Activity Index registered 53.3 percent, down 1.2 percentage points from the previous month, and the Employment Index was 50.2 percent, a 0.9-point decrease.
There were red flags on employment: Services Business Survey Panel respondents’ comments mentioned hiring slowdowns and/or layoffs, and 14.5 percent of surveyed companies reduced staff in August, compared to 10.7 percent the previous month.
Wrote a survey respondent in Management of Companies & Support Services, “Hiring of employees, contractors and consultants continues to decline as companies look to control costs during a period of economic and political uncertainty. Employee layoffs continue across a broad range of companies and industries.”
US ISM services employment softens to 50.2 vs 50.5 consensus estimate, 51.1 prior.
— Prashant Nair (@_prashantnair) September 5, 2024
Underscores downside risks to US jobs data tomorrow !#StockMarket
The Backlog of Orders Index typically gets more attention in ISM’s Manufacturing report, but the Services gauge has been notable recently, with an August reading of 43.7 percent that indicated contraction for the second time in three months. Since May, the index has decreased 6.8 percentage points, increased 6.6 points and dropped 6.9 points to its current figure.
Business activity and new orders expanding and faster supplier deliveries is typically not a recipe for reduced backlogs, but Miller noted multiple respondent comments on cancelled orders: “It looks like the reduction in August is directly related to activity in certain industries, rather than a trend,” he said.
Educational Services, Retail Trade and Utilities were the industries reporting the biggest increases in order backlogs.
The U.S. Federal Reserve is expected to cut interest rates this month, and Miller said that Real Estates, Rental & Leasing, Construction and Utilities will be the services industries getting the biggest boost. “In many ways, panelists’ comments indicated an assumption that rates are coming down,” Miller said.
A more relaxed federal monetary policy figures to have a bigger impact on the manufacturing sector, where capital investments are a heavy emphasis. That sector’s current contraction period has been lengthy (nearly two years), but generally mild and stable.
Meanwhile, the Services PMI® data has not only reflected stability, but also consistent expansion. Miller said all signs point to solid, though unspectacular, growth continuing through the end of the year. “Nothing indicates a dramatic shift up or down,” he said.
The Report On Business® roundup:
Barron’s: ISM Services Data Provide Some Good News for Stocks. “The (Dow Jones Industrial Average) turned slightly higher in the wake of the report. The S&P 500 was up 0.4 percent. The Nasdaq rose 1 percent. Bond yields jumped, with the two-year Treasury yield surpassing the 10-year yield once again at 3.758 percent and 3.751 percent, respectively.”
Bloomberg: U.S. Services Activity Expands at Modest Pace for Second Month. “After improving slightly in July, the (Backlog of Orders Index) slumped nearly 7 points, the most in a year. While the index is volatile, the contraction in backlogs over two of the last three months risks prompting companies to adjust headcount and worker hours.”
US ISM'S MILLER TO REPORTERS: LESS IMPACT ON SERVICES VS. MANUFACTURING SECTOR FROM POLICY UNCERTAINTY AHEAD OF ELECTION; RE INTEREST RATES, RESPONDENTS SEE CUTS #ISM #services
— Mace News (@MaceNewsMacro) September 5, 2024
MarketWatch: Economy Grew Again in August, ISM Finds, but Momentum Faded. “The services side of the economy has powered the U.S. for the past few years, but it’s also feeling the strain of high interest rates and a surge in inflation. … Lower borrowing costs could boost sales, encourage more hiring and spur the economy.”
Reuters: U.S. Service Sector Steady in August; Employment Cooling. “Economists polled by Reuters had forecast the Services PMI® dipping to 51.1 percent. The report added to solid consumer spending in July in suggesting that the economy continued to expand, though at a moderate pace relative to last year.”
In case you missed Tuesday’s Report On Business® Roundup on the release of the August Manufacturing PMI®, you can read it here. The Hospital PMI® will be released on Friday. For the most up-to-date content on the three indexes under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.
(Photo credit: Getty Images/Kadmy)