For a lot of investors and traders out there, today marks the beginning of the “back to work” season on Wall St. where the summer is unofficially over, vacations are now wrapped up, and focus shifts back to the daily grind. In terms of economic data, the back to work season certainly isn’t starting off on the right footing as today’s ISM Non-Manufacturing report came in significantly weaker than expected. While economists were forecasting the headline index to come in at a level of 55.0 versus last month’s reading of 55.5, the actual reading came in at 51.4. As shown in the chart below, it was truly an ugly reading. Not only was it the weakest report relative to expectations since April 2011, but it was also the lowest monthly reading since February 2010, and the biggest monthly drop since November 2008.
As if the Non-Manufacturing report wasn’t bad enough, remember that it comes on the heels of last week’s ISM Manufacturing report which also missed consensus expectations by a wide margin and dipped back into contraction territory. Taking both of these reports together and weighting them for their share of the economy, the combined ISM report for the month of August dropped from 55.1 down to 51.2. That represents the lowest reading since January 2010 and was also the largest monthly decline since November 2008.
The table below breaks down this month’s ISM Services report by each of the subsectors and shows their changes over the last month and year. As shown, this month’s report was a sea of red. On a month over month basis, the only categories that increased in August were Supplier Deliveries and Inventory Sentiment. The biggest decliners this month were Export Orders (-9.0), New Orders (-8.9), and Business Activity (-7.5). Relative to last year, the changes were even more negative and Prices was the only category to increase, and New Orders and Business Activity saw the largest declines.