ISM nonmanufacturing index jumps to 56.4 in August from 53.7
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The numbers: The huge service side of the economy grew in August at the fastest pace in three months, shielding the U.S. economy from the harmful effects of an escalating trade war with China.
A survey of nonmanufacturing firms such as retailers, restaurants and home builders climbed to 56.4% from a three-year low of 53.7% in July, the Institute for Supply Management said Thursday.
Sixteen of the 17 industries tracked by ISM expanded. One executive said “summer doldrums appear to be over.”
Numbers over 50% are viewed as positive for the economy, and anything over 55% is considered exceptional.
What happened: Production and new orders both surged in August and topped the 60% mark, reflecting steady demand and the expectation of stronger sales in the months ahead.
One caveat: Companies hired more workers and increased hours at the slowest pace in 2½ years.
The strength in the services sector more than offset the weakness in the much smaller manufacturing part of the economy.
Read: U.S. manufacturing index falls below key 50 mark that sometimes signals recession
Big picture: The U.S. is showing more signs of stress due to the trade war with China, but the much larger service sector that employs the vast majority of workers in the country has largely weathered the trade storm. Those companies derive most of their sales in the U.S. and face little foreign competition
Still, the trade disputes have raised the cost of raw materials and contributed to general uncertainty.
“Tariffs are affecting the cost of goods on all items imported from China. We’ve experienced a 10% increase on Chinese ingredients which kicked in on August 1,” said an executive at a food-services provider.
Unless trade tensions die down, the service sector and the U.S. economy more broadly are unlikely to grow much faster.
What they are saying? “The divergence between the manufacturing sector, hit by global softness and trade uncertainty, and the rest of the economy, which is mostly domestically-oriented, continues to get wider and wider,” said Amherst Pierpont Securities chief economist Stephen Stanley.
Read: The U.S. economy just entered a record-shattering 11th year of expansion
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