The economy is not yet expanding but a key measure of the broad service sector suggests the contraction continues to moderate, easing worries that June’s nasty payroll report overstated problems in the economy.
The ISM Non-Manufacturing Index increased from 44.0 in May to 47.0 in June, just ahead of the consensus forecast and the highest level since last September. A reading of 50 is a signal that the service sector is neither expanding nor contracting.
Most subcomponents rose, including employment, while the prices paid increased 6.8 points to 53.7, the first time above 50 in eight months and another indication that a bottom in the economy may be near. It’s also the latest nail in the deflation coffin, in my view.
Today’s ISM report is consistent with most economic data out recently and suggests that June’s nonfarm payroll number may have unnecessarily added to fears that an upturn won’t begin until 2010.
And it’s possible that May’s smaller-than-forecast job loss may have been the result of seasonal factors that weren’t accounted for by the Labor Department, and June’s lousy reading overstated the weakness.
Averaging May and June, 394,500 jobs went away, and that’s a solid improvement compared to the first four months of the year. If jobless claims started edging higher, that would be a cause for concern but that seems unlikely at this point.
Employment lags
I’ve stated in the past that the labor report is a lagging indicator, and for those new to the blog or are just beginning to take an interest in the economy, a lagging indicator is simply that – an indicator that lags behind activity.
Sadly, jobs will be the last to pick up after an economic rebound.
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