Non Manufacturing ISM Is Latest Economic Miss: Drops To 52.7 From 53.3, Below Consensus Of 53.3

Joining the Manufacturing ISM in the disappointment column is the just released Non-Manufacturing ISM which printed at 52.7 below consensus of 53.5, down from 53.3 previously. This is the lowest reading since January 2010. The employment index dropped from 54.1 to 52.5, the New Orders index missed contractionary territory barely at 51.7 down from 53.6, and lastly, the Prices Paid was down from 60.9 to 56.6, potentially opening up the way for QE3, even more that is. Elsewhere, June factory orders dropped by 0.8% in line with expectations, down from 0.6%, meaning no dramatic revisions to the already abysmal Q2 GDP, and Durable Goods was revised from -2.1% to -1.9%. Altogether another ugly economic data set, with the bounce in stocks most likely dictated by even higher QE3 expectations.

The always entertaining respondents:

  • "Sales and customer traffic recovered slightly, pulling even with last year after trending lower for several months. Discretionary spending per customer has continued to decline in all areas of the operation." (Arts, Entertainment & Recreation)
  • "Sales volumes are steady. Input costs are increasing." (Agriculture, Forestry, Fishing & Hunting)
  • "Business outlook remains steady, but concerns about the second half of the year remain." (Professional, Scientific & Technical Services)
  • "Municipal government has not bounced back at a similar pace to the private sector." (Public Administration)
  • "New home construction is still very slow. Repair and remodel is the only bright spot." (Wholesale Trade)
  • "Commodities cooling off and dropping a bit." (Retail Trade)

INDUSTRY PERFORMANCE (Based on the NMI)

  • The 13 non-manufacturing industries reporting growth in July based on the NMI composite index -- listed in order -- are: Transportation & Warehousing; Mining; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Public Administration; Educational Services; Information; Finance & Insurance; Other Services; and Wholesale Trade.
  • The five industries reporting contraction in July are: Professional, Scientific & Technical Services; Management of Companies & Support Services; Health Care & Social Assistance; Utilities; and Construction

And some price observations. Oddly enough not all that many commodity price drops. Actually almost none.

COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY

  • Commodities Up in Price

Airfares (8); Asphalt Products; Beef; Can Liners (4); Cardboard; Cheese (2); Construction Labor; Copy Paper (2); Cotton Products (11); Dairy; #2 Diesel Fuel (13); Fuel (19); Gasoline(c) (10); Janitorial Maintenance Supplies; Lumber; Maintenance Contracts; Office and Computer Supplies; Packaging; Paper (9); Paper Products; Petroleum Products (7); Plastic Bags; Plastic Products (5); and Roofing Shingles.

  • Commodities Down in Price

Chicken; Computers and Computer Supplies; Diesel Fuel; Gasoline(c) (2); and Natural Gas.

  • Commodities in Short Supply

Trucks is the only commodity reported in short supply.


Some immediate responses from Wall Street:

TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

"I think as advertised by the ISM manufacturing board, the service component also slowed. I think this report will likely be received as not as bad as feared. But like manufacturing, the trend is undeniable. We have been slowing now since the beginning of the year. This will not quell the chatter in the market that we may be moving toward a recession.

"I don't think anyone should doubt the creativity of the Fed but I don't know what they have left in their bag of tricks. I don't think another QE is the remedy. We've had two rounds and here we are still looking at a slowdown.

"There has just been one bad number after another and it's beginning to weigh on sentiment in the markets."

RUDY NARVAS, SENIOR ECONOMIST, SOCIETE GENERALE, NEW YORK:

"It is slightly weaker than expected, most of the key gauges were down. It looks like this confirms that we are in a bit of a soft patch here, although not as soft as the manufacturing data, and if you look at what the respondents are saying it doesn't seem to be as tied to concerns about the debt ceiling, which the manufacturing survey seems to be pointing to.

"It is not pointing to recession, but we still have to see how the data turns out -- the data is a little bit all over the place these days and the risk is things are not looking as bright as they were in June or prior to that."

MARK LEHMANN, PRESIDENT OF JMP SECURITIES IN SAN FRANCISCO:

"The ISM number shows continued malaise in the economy. It continues to demonstrate that the recent outlook has dissipated. Every indicator we've had has confirmed that. The ADP report was a nice kicker, but not enough to overcome some of the things we've seen recently. There are more clouds than there were a few months ago, and the euphoria over the debt ceiling deal has disappeared, leaving us with weak growth prospects."