The ISM Services report for July came in lower than expected on Friday and missed expectations by a pretty decent amount, falling from 59.1 down to 55.7 compared to expectations for a reading of 58.6. With the actual reported number missing expectations by 2.9 points, it was the largest miss relative to expectations in exactly one year (8/3/17). On a combined basis and accounting for each sector’s share of the overall economy, the July ISM report came in at 56.0 compared to last month’s reading of 59.2. In the cases of both the ISM Services report and the combined ISM, July’s readings were the worst headline levels since last August.
The table below breaks down the breadth of this month’s ISM report by showing each component’s m/m and y/y change. On a m/m basis, breadth in the July report was skewed just slightly negative, but we saw large declines in Business Activity, New Orders, and Backlog Orders. Conversely, both Prices Paid and Employment saw the largest increases. On a y/y basis, however, breadth remains positive and despite the large drops in Business Activity and New Orders, both indices are either flat to slightly higher relative to a year ago.
One interesting fact regarding the components of the ISM Services report is that this month was only the second time since 1997 (when data begins) that Business Activity, New Orders, and Backlog Orders all fell 5 points or more on a m/m basis. The only other time they fell that much or more was in October 2001, right after 9/11. One key difference between now and then, though, is that even after July’s declines, all three of these components are still well above 50 (dividing line between growth and contraction). Back in October 2001, these three components were only slightly above 40. In our newest Bespoke Report, we will have a full discussion of this week’s economic data slate as well as the latest earnings and market news. To read it, start a two-week free trial to Bespoke Premium!