Bloomberg is reporting U.S. ISM Service Industries Index Increased to 47.

U.S. service industries from retailers to homebuilders contracted last month at the slowest pace in nine months, as measures of new orders and employment improved.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 47 — higher than forecast — from 44 in May, according to data from the Tempe, Arizona-based group. Readings less than 50 signal contraction.

The index’s third straight monthly improvement reflects signs of stabilization in housing and consumer spending. That combined with leaner inventories means companies may start expanding output again in coming months. Still, mounting job losses and stagnant wages are likely to restrain some purchases, limiting the impact of any recovery.

“The gradual improvement is very good news,” Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said today in a Bloomberg Television interview. The services index “should continue to track improvement in the broader economy,” she said.

ISM Report On Business®

Inquiring minds are investigating the June 2009 Non-Manufacturing ISM Report On Business®.

“The NMI (Non-Manufacturing Index) registered 47 percent in June, 3 percentage points higher than the 44 percent registered in May, indicating contraction in the non-manufacturing sector for the ninth consecutive month, but at a slower rate. The Non-Manufacturing Business Activity Index increased 7.4 percentage points to 49.8 percent. The New Orders Index increased 4.2 percentage points to 48.6 percent, and the Employment Index increased 4.4 percentage points to 43.4 percent. The Prices Index increased 6.8 percentage points to 53.7 percent in June, indicating an increase in prices paid from May. This is the first time the index has registered above 50 percent since October 2008.

Comparison of ISM Non-Manufacturing and Manufacturing

The chart shows that business activity in manufacturing is in positive territory (expansion) and non-manufacturing is close. The prices paid index is positive but with the recent pullback in commodity prices I do not expect to see it stay there. Employment in manufacturing and non-manufacturing remains at depressed levels.

The numbers are consistent with slowly stabilizing activity at low levels but with employment acting as a huge drag.

Mike “Mish” Shedlock
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