U.S. Service Economy Gets Rocked

I couldn't resist the drama. This headline is a reaction to all of the misleading headlines of the past week. The stock market is having trouble with this piece of news:

U.S. service industries unexpectedly contracted at a faster pace in July as concern over rising unemployment gripped consumers.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 from 47 in June, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.

Wow, the mighty U.S. service sector, which makes up a whopping 90% of the economy, 'unexpectedly' contracted. Why is this 'unexpected'? WTF, unemployment is still very high, people still don't have confidence to purchase stuff and we are being told that we are saving more (actually I think people are de-leveraging and defaulting).

I like this quote from the article:

“There are still plenty of problems out there. To declare everything is fine is premature at this stage.”

Yeah think!

Here are the details:

NMISM Survey July 2009

Non-Manufacturing ISM Survey July 2009 (click the image for a closer look)

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actual ISM report

July 2009 Non-Manufacturing ISM Report On Business.

NMI @ 46.4%

The NMI (Non-Manufacturing Index) registered 46.4 percent in July, 0.6 percentage point lower than the 47 percent registered in June, indicating contraction in the non-manufacturing sector for the 10th consecutive month, at a slightly faster rate.

The Non-Manufacturing Business Activity Index decreased 3.7 percentage points to 46.1 percent. The New Orders Index decreased 0.5 percentage point to 48.1 percent, and the Employment Index decreased 1.9 percentage points to 41.5 percent.

The Prices Index decreased 12.4 percentage points to 41.3 percent in July, indicating a significant decrease in prices paid from June.

You might want to pull in some of these numbers, from the actual report into your post.

Well, those MSM finance people were reporting "slower contraction" as an expansion previously but this report shows contraction and faster than last month, so you're right, it's pretty hard to spin that one.

You are right.

Why copy traditional media if it is the truth that we seek?

RebelCapitalist.com - Financial Information for the Rest of Us.

ISM report

isn't traditional media, that's the actual data sheet.

oops, I misread your comment.

Yeah, most of the people on EP can indeed read these reports, run spreadsheets, number crunch and many also have at least some economic theory. This is one of the main goals for EP is to get regular folks reading legislation, indicators, theory, policy for themselves or at least get an alternative view point, from people who are like themselves.

If you notice I try to pull the original data sheets, the original statistics, when reporting on any EIs.

The reason I do that and read them for myself, is because the MSM spins so much.

I also think it's useful for all of us to learn how to read the actual reports.

For example, I doubt you'll see too many MSM articles pointing to the 4 columns as contracting faster.

That is not a recovery, period.

What I meant was that trad. med.

leaves out the important details like PCE increase was due to increase in prices or existing home sales where helped because of $8000 first time home buyer credit that is due to expire soon.

RebelCapitalist.com - Financial Information for the Rest of Us.

my bad

I misread your original comment, sorry not enough caffeine yet.

Exactly. Another thing we can look at is the weighting of these EIs, their historical significance, as well as the increasing anomalies from past cyclical indicators.

It's a new day and age, although I will argue to get really good reporting, frankly people need to earn a decent living, they need to be paid to do it right....

but on the other hand, all of the raw data is increasingly available online, so there is no reason why people cannot self-educate and go to the raw materials.

Here is a dumb question:

If the service sector is such a huge segment of the economy then does any slight improvement in the manufacturing sector really matter? Does the inventory cycle really matter to any "recovery"?

RebelCapitalist.com - Financial Information for the Rest of Us.

where are you getting this 90% is service sector?

Last ratio I saw was a 55/45 split.

ISM survey covers the following:

The seven industries reporting growth in July based on the NMI composite index — listed in order — are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Mining; Information; Health Care & Social Assistance; and Retail Trade. The 10 industries reporting contraction in July — listed in order — are: Other Services; Management of Companies & Support Services; Public Administration; Finance & Insurance; Wholesale Trade; Professional, Scientific & Technical Services; Transportation & Warehousing; Construction; Educational Services; and Accommodation & Food Services.

According to CIA - The World Factbook (I know it is the CIA) - GDP Composition by Sector:

Agriculture: 1.2%
Industry: 19.6%
Service 79.2% (est. 2008)

RebelCapitalist.com - Financial Information for the Rest of Us.

yeah, and...

that's not 90%. I'm not sure what you're getting at.

But real estate was 3.5% GDP growth before the crash and manufacturing is just being sliced and diced, moved offshore so it might be lower than that. At the height, it was about 30% GDP, so for me the issue is to revamp U.S. manufacturing for it not only is a growth area, but it also scales well, creates middle class jobs and is important for national strategy, plus spawns a lot of R&D and innovation.

What's the original thing? Oh, yeah, where will the growth come from if not manufacturing? I mean are we going to re-inflate the housing bubble or create more "financial products innovation"?

I'll have to look more at this because I believe manufacturing can also spawn services around it.