US: ISM Non-Manufacturing Index could have inched down by about half a point in July - RBS

Research Team at RBS, suggests that after reaching a seven-month high in June, the US ISM non-manufacturing index could have inched down by about half a point in July to 56.0.

Key Quotes

“If realized, this would still leave the index one point above the Q2 average (55.0) and squarely in line with average registered over the last 12 months (56.0). On the positive side, equity markets have strengthened and jobless claims have remained low. Less favorably, consumer and home builder confidence measures have been mildly softer.

Meanwhile, other timely service sector gauges were slightly more positive in July, including the National Association of Credit Managers’ (NACM) service sector index and the New York, Philadelphia, Dallas, and Richmond Fed services surveys.

The upcoming report will also be the first (routine) post-Brexit nonmanufacturing ISM survey. In a special report released on July 1, the ISM polled manufacturers and non-manufacturers with regard to how their members view their business prospects in the wake of Brexit. According to the findings, most executives didn’t foresee “major disruptions” from Brexit but are “cautiously watching the situation closely” and believe Brexit “will hamper growth”.

On a component-by-component basis, the subjective business conditions index in the ISM survey could have cooled a little from the 59.5 print seen in June. Additionally, there may have been a moderation in the new orders component, which in June matched the highest reading of the year.

As usual, focus will also be on the key employment gauge ahead of the July employment report. That index bounced three points in June after falling over three points in May. Still, the index has trended downward so far in 2016. Most of the regional service sector sentiment surveys we look at (New York, Philadelphia, and Dallas Feds), the employment gauge improved in July; the exception was the Richmond Fed employment gauges. Meanwhile, the national Markit Services PMI’s employment component edged up slightly in July’s flash reading. On balance, the message seems to be that the state of non-factory jobs during July likely remained fairly solid.”