Institute for Supply Management: Nonmanufacturing Sector Expands, Employment Index Volatile

The Wall Street Journal recently reported on data released earlier this week by the Institute for Supply Management, which showed growth in the U.S. nonmanufacturing sector. The nonmanufacturing purchasing managers’ index increased to 56.0 in July from 52.2 in June, the highest since February and higher than forecasted. However, the employment index has “remained volatile. It slipped to 53.2 after it bounced back to 54.7 in June from a very weak 50.1 in May.”

I asked Thomas Kase to comment on these numbers, and he said that “for those not used to ISM’s numbers, 50 might not sound so bad, but it is. Anything below 56 should be seen as a negative.”

As Thomas goes on to explain, “The bit about the Department of Labor reporting ‘a modest gain of just 162,000 jobs added last month’ is perhaps the worst news. It is complicated to explain how many jobs are required per month to make a dent in the unemployment statistics, but it is fair to say that TWICE that number is needed. 162,000 is not really a gain when you consider how many new entrants there are all the time. Babies keep getting born.”

Another area that has seen a significant jump is the prices index, which increased from 52.5 to 60.1. “This is a bit of a shocker,” says Thomas. According to the WSJ, “some items with increased prices included airfare, beef, and corrugated boxes,” though anyone who has booked a plane ticket this summer is probably well aware already.

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