ISM non-manufacturing index gains; prices up for 30th straight month

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The U.S. services sector expanded at a faster pace in August as the non-manufacturing index rose to 58.5 from 55.7 in July, on a seasonally adjusted basis, the Institute for Supply Management reported Thursday.

An index reading below 50 signals a slowing economy, while a level above 50 suggests expansion.

Economists polled by IFR Markets had expected a 57.0 level.

The prices paid index fell to 62.8 from 63.4, the 30th consecutive month prices were growing, the ISM said. The employment index rose to 56.7 from 56.1.

The business activity/production index gained to 60.7 from 56.5, the new orders index was at 60.4, up from 57.0; backlog of orders climbed to 56.5 from 51.5; new export orders increased to 60.5 from 58.0; inventories remained at 53.5; inventory sentiment increased to 59.5 from 58.0; the supplier deliveries index rose to 56.0 from 53.0; and imports dipped to 52.0 from 52.5.

Members' general comments on business in the month included:

  • “Tariff-related cost increases are beginning to accelerate, whether tariffs have been put into effect or not.” (Construction)
  • “Our business continues to increase, perhaps linked to the general economy and aging baby boomers.” (Health Care & Social Assistance)
  • “Government tariffs are negatively impacting production and recycling sales. Pulp costs have gone up, and that has directly impacted paper for our newspaper production and copy paper. A 10-percent tariff has been placed on aluminum, [which] is used to make production plates. Those used plates are put on the recycling market, which China has put a tariff on. These dynamics have a significant impact on newspaper margins.” (Information)
  • “Business for August is surprisingly higher for our company compared to last month and YOY [year over year]. Based on current trends on customer quote requests and conversions to orders, we are trending for this month to be the best August in the history of our company.” (Management of Companies & Support Services)
  • “The global tariff war, [with] steel in particular, has driven the cost of goods higher.” (Mining)
  • “Oil and gas hiring continues to increase, particularly in the oil-field services sector. Capital-project activity is strong in the downstream, petrochemical, midstream and onshore drilling sectors. New investment in deepwater drilling projects remains low.” (Professional, Scientific & Technical Services)
  • “Business activity is markedly higher now that the government is in the fourth quarter of its fiscal year and agencies need to obligate their fiscal year 2018 funds. Many contracts expiring in this time frame require renewal.” (Public Administration)
  • “Overall, business has increased. Many factors can be attributed to this increase in demand, [including] the budget and positive outlook on the economy.” (Real Estate, Rental & Leasing)
  • “Solid Q2 results, beating estimates all around. Since we are a services business, the tariffs have little impact [at this point] but are nonetheless a consideration. We do harbor future concerns about the general cost of goods from overseas and the effects on consumer pricing. In the labor market, we have seen a noticeable increase in difficulty to attract and retain talent at all levels. We have begun taking steps to change compensation packages to combat this issue.” (Retail Trade)
  • “Demand for transportation has started earlier than normal with the rail [industry] announcing peak season surcharges that were effective August 1. We are having to re-adjust inventory levels sooner than anticipated.” (Wholesale Trade)
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