Lackluster service-sector report shows long-term weakness ahead

The Institute for Supply Management released it’s non-manufacturing report today hit 52.1, the lowest in more than 12 months, indicating that while the service-related businesses are still growing, the growth is slowing.

In May, the Non-manufacturing index (NMI) was at 53.7. June’s NMI was markedly lower at 52.1 indicating that service-sector employers were seeing weakness in their respective industries.

While the construction industry perceived the economy to be flat from the prior month. Only entertainment and recreation saw any growth month-over-month as Americans head into the heavy summer vacation season. All other service sectors were seeing weakness building in their businesses.

Business activity for services fell off almost 4% in June while the backlog of new orders slipped into decline indicating that a turn-around isn’t likely soon.

While the employment index of the survey showed increased hiring, the activity, inventory and backlog indices indicate that they might be hiring into a slowdown. Inventory sentiment gives more proof to that assertion as business owners feel that they have too much capacity for the current demand and while demand is weakening, capacity hasn’t matched it as of yet.

The report’s employment index may show slight improvement for the employment report due out Friday, but huge improvements should not be expected. While most analysts are projecting 90,000 new jobs in Friday’s report, it will be only a small improvement over May’s dismal jobs figures.

Summary

When looking at the June Manufacturing report and services reports together, backorders have slipped into decline and both major indices are showing their lowest numbers in more than a year. The economy is slowing and another downward revision in annual GDP for the United States should be expected.