Implications: After July's increase, the ISM non-manufacturing index declined in August, coming in below the consensus expected dip to 53.2. Yet the overall index remains above the critical 50 level, indicating the service sector of the economy is still growing, albeit at a slower pace than the last few months. With economic pessimism as rampant as ever and equities having dropped in August, today's report may have been influenced more by sentiment than real economic activity, as is often the case. The sub-indexes of the report were also down from last month, but still show continued economic growth. In particular, the business activity index, which has an even stronger statistical link with real GDP growth than the overall index, fell to a still healthy 54.4 in August from 57.4 in July. On the inflation front, the prices paid index leaped higher to 60.3, signaling upward price pressure similar to the levels seen earlier this year. While higher prices are not showing up as much in the government's measures of inflation, its clear that businesses, both in manufacturing and services, are feeling upward price pressure. With easy money from the Federal Reserve, we expect inflation to accelerate beginning next year.
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Posted on Friday, September 3, 2010 @ 12:39 PM
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