In the July 2011 Non-Manufacturing ISM Report On Business®, the ISM offered this interesting thought: Respondents’ comments remain mixed; however, for the most part they indicate that business conditions are flattening out.”

Why Services Number Worse Than It Looks

Here is a table from the report, with annotations in red, green and blue by me, that suggests things are weaker than they look.

click on table for sharper image

The NMI/PMI is an equal weighted index of four components.

  1. Business Production
  2. New Orders
  3. Employment
  4. Supplier Deliveries

Unsustainable Conditions

Production is +2.7 while new orders, employment, and deliveries are down. Also note that backlog of orders has plunged over the past two months. Meanwhile new export orders is not only in a free-fall, but also in contraction for the first month as the global economy cools.

Supplier deliveries are on the verge of contraction, and inventories were +3 points to 56.5.

In short, one of these numbers does not make sense in relation to the others, in relation to the manufacturing ISM, in relation to the financial industry, and in relation to the global economy.

That 56.1 production reading at +2.7 simply does not fit in, and is not sustainable if the other conditions remain in current “slowing” condition.

The possibility of a much bigger decline next month seems very real. In fact, that is my call in advance.

Slowing Global Economy Links

Soft Patch?

Those are just a few of the economic stories from the last 3 days. Is this a “soft patch” or is it “soft thinking” by those who believe the former?

Mike “Mish” Shedlock
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