All this year the U.S. service sector has been making up for weakness in manufacturing.
Not in August. The Institute for Supply Management’s non-manufacturing index slipped to 51.4 in the August survey. That’s down from 55.5 in July and is the lowest reading since February 2010. (In the ISM index a reading above 50 indicates expansion and below 50 contraction.) The ISM’s manufacturing index, released on September 1, showed that the sector contracted in August.
Economists surveyed by Bloomberg had forecast a reading of 54.9.
I think all the advice NOT to put too much emphasis on a one-month result in this survey is absolutely correct BUT the one-month numbers are nonetheless very important coming as they do just weeks before the Federal Reserve’s September 21 meeting on interest rates. Today’s disappointing non-manufacturing results are just another reason for the Fed to wait until it has better read on the economy before moving on interest rates. It becomes especially hard to justify an interest rate increase this close to the November election with this much uncertainty in the economic data.
One sub-index that’s likely to draw extra attention is the huge tumble in new orders. The new orders sub-index fell to 51.4 from 60.3. That the biggest top since January 2008 and lead up to the Great Recession that followed on the global financial crisis. Order backlogs fell to 49.5 (a contraction reading) from 51.