After some weak data to start out the week, today’s ISM Non-Manufacturing report for June provided a welcome surprise. While economists were forecasting the headline index to post a modest increase to 53.3 from last month’s level of 52.9, the actual reading came in at a much better than expected 56.5. That was the best reading for the index in 2016 and the biggest beat relative to expectations since the release of the July report last August. This month’s increase was also the largest m/m jump in the ISM Services Index since February 2008. On a combined basis and accounting for each sector’s weight in the overall economy, the combined ISM for June rose to 56.1 from 52.7. That was the largest m/m increase in the combined reading since April 2009.
The table below breaks down the ISM Services report by each of its ten sub-components. In this month’s report, every component except Backlog Orders was above 50 and all but two (Backlog Orders and Prices) saw m/m increases. The biggest increases this month came in New Orders and Business Activity, which are both now inching closer to 60. These kind of trends are hardly indicative of a recession. On a y/y basis, gains were more muted with six components increasing and four declining. The biggest gainer was Import Prices, while the biggest loser was Backlog Orders. Finally, with the July Employment report coming up Friday, we would note that the Employment component of today’s report moved back above 50 to 52.7. Historically speaking, when the Employment component has been within a point above or below 52.7, the NFP reading for that month has been an average of 186K. For reference, the consensus estimate for this Friday’s report is 180K.