ISM Services Unexpectedly Expanded This Amount in August

The Institute for Supply Management’s index of non-manufacturing businesses increased to 53.3 in August, up from 52.7 in July. Economists had forecast the gauge would drop in August to 51. Anything about 50 is considered expansion. The index averaged 56.1 in the five years leading up to December 2007.

The fact that non-manufacturing industries account for roughly 90% of the economy means the increase in activity bodes well for the economy as a whole. “While the market and gauges of sentiment have been telling us growth and economic demand had fallen off a cliff, the underlying economy has persevered fairly well through this period,” said Russell Price, senior economist at Ameriprise Financial Inc., ahead of the report.

The ISM new-orders index also grew, rising from 51.7 in July to 52.8 in August, though the gauge of business activity fell from 56.1 to 55.6. The prices-paid index increased from 56.5 to 64.2. The employment index declined from 52.5 to  51.6, its lowest level since September 2010.

The ISM services survey covers industries ranging from utilities to healthcare to finance. On September 1, the ISM released figures showing that the manufacturing industry had unexpectedly expanded in August. Most economists had predicted the index would drop below 50, indicating a contraction. And yet despite positive industry growth, many other economic indicators have not kept up.

The Conference Board’s index of consumer confidence dropped in August to its lowest level since 2009. Meanwhile, the national unemployment rate held steady last month at 9.1%, while overall earnings and hours actually declined, thus reducing the income of consumers whose spending accounts for roughly 70% of the economy. On August 29, the Commerce Department reported that income, when taking out taxes and adjusting for inflation, dropped 0.1% in July, its first decrease since September 2010.

President Obama will speak on September 8 in a joint session of Congress, where he will propose measures to promote job growth.

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