Earlier this week, we noted that despite the slightly weaker than expected reading in the ISM Manufacturing report, the commentary within the report was extremely strong. Today, we got the latest read from ISM regarding the non-manufacturing sector, and here, not only was the report much weaker than expected, but the commentary was a stark contrast to what we saw from respondents in the manufacturing sector. As shown below, most respondents noted a slowdown, quiet time, flattening growth, and a slower than expected second quarter. One caveat here is that many of the respondents also noted that the slower activity was expected and typical for this time of year, but the tone was decidedly different from what we saw in the manufacturing sector just two days earlier.
As far as the actual report is concerned, the July ISM Services report came in at a level of 53.9 versus estimates for a level of 56.9. That made the July report the weakest relative to expectations since the report from last August and the third weakest relative to expectations of the entire expansion. It was also the largest month/month drop since November 2008. That’s a big drop! On a combined basis and accounting for each sector’s share of the overall economy, the July ISM also dropped from 57.4 down to 53.9, which was also the steepest one month decline since November 2008.
Looking at the internals of the ISM Services report, things were also generally weak. Of the ten components, only three increased, including Prices Paid. On the downside, the largest declines came from New Orders and Business Activity. On a year/year basis, breadth was less weak but was still far from strong. As mentioned above, respondents noted that the weaker conditions this month were expected and considered to be temporary. That better be the case, or else we could be in for a shaky end of the year from the economy’s perspective.