July 2017 Institute for Supply Management

Deceleration sums up the American economy in July 2017 according to the latest data from the Institute for Supply Management (ISM).  Each month this organization surveys purchasing managers from various firms to get a sense of the economy’s velocity.  The good news is that output continued heading in a positive direction.   Unfortunately, there was some evidence of deceleration coming from both segments of output.

The ISM’s non-manufacturing index fell to 53.9 from 57.4 in May.  Partially leading this decline was the coincident component of the report: The Business Activity Index.  This coincident indicator dropped 4.9 percentage points to 55.9 percent.  On its own, this is a healthy tally, but the deceleration does not bode well for our economy’s growth rate in the current quarter, especially since this sector (services) is the largest segment of the economy.  Forward-looking components of this report do not show signs of reacceleration either.  New orders fell 5.4 percentages points to 55.1; like the activity figure, this is a healthy absolute tally but still represents weakening versus the prior period.

A similar slowing occurred in the manufacturing segment of the economy.  Its reading of 56.3 is not a bad number, certainly nowhere near the levels affiliated with recessions.  However, it decelerated from 57.8 in the prior period, suggesting a more sluggish rate of growth to start the third quarter than was experienced at the end of the second quarter.  Production (the coincident component) declined 1.8 percentage points, while the forward looking component of New Orders dropped 3.1 percentage points which could be signaling slower output on the horizon. 

A single decelerating month of data is not something about which one should be alarmed.  Neither of these figures is near recessionary levels.  It is more like the economy has taken its foot off of the gas pedal, not applied the brakes.  A reacceleration in July seems as likely as further erosion to the growth rate, so ISM data for August is anticipated anxiously at Atlas, and if any cause for caution arises in the next iteration, we’ll be sure to tell you about it here.