In the July 2011 Non-Manufacturing ISM Report On Business®, the ISM offered this interesting thought: Respondents' comments remain mixed; however, for the most part they indicate that business conditions are flattening out."
Why Services Number Worse Than It Looks
Here is a table from the report, with annotations in red, green and blue by me, that suggests things are weaker than they look.
The NMI/PMI is an equal weighted index of four components.
- Business Production
- New Orders
- Employment
- Supplier Deliveries
Unsustainable Conditions
Production is +2.7 while new orders, employment, and deliveries are down. Also note that backlog of orders has plunged over the past two months. Meanwhile new export orders is not only in a free-fall, but also in contraction for the first month as the global economy cools.
Supplier deliveries are on the verge of contraction, and inventories were +3 points to 56.5.
In short, one of these numbers does not make sense in relation to the others, in relation to the manufacturing ISM, in relation to the financial industry, and in relation to the global economy.
That 56.1 production reading at +2.7 simply does not fit in, and is not sustainable if the other conditions remain in current "slowing" condition.
The possibility of a much bigger decline next month seems very real. In fact, that is my call in advance.
Slowing Global Economy Links
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Factory Production August 3: Durable Goods Orders Sink 2.1%, Non-Defense Orders Sink 4.1%
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Consumer Spending - August 2: US Consumer Spending Unexpectedly Declines, First Drop in 20 Months; Personal Savings Rate Highest Since August 2010
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Anecdotes From Bill Gross - August 2: Bill Gross says "Fed Approaching Dead End Unsolvable Dilemma"; Feldstein sees 50% Chance of Recession; Three Cardinal Rules of Stimulus
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Shipping - August 2: Freighter Rates See Significant Plunge In Normally Busiest Time of Year
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Petroleum Usage - August 2: Petroleum Distillates Demand Shows "Definite Economic Downturn Starting April/May 2011"
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Manufacturing ISM - August 1: Gap-and-Crap it Was; ISM Plunges to 50.9, Lowest Level in 2 Years, New Orders Contract; Key Thoughts; Reaction in Gold
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Canada GDP - July 30: Canada GDP Declines .3%, Largest Drop in Two Years - Don't Worry It's "Temporary"; Canadian Apologists Be Warned
Soft Patch?
Those are just a few of the economic stories from the last 3 days. Is this a "soft patch" or is it "soft thinking" by those who believe the former?
