The service sector continued to improve in August, but a little more hesitantly than it did in July, according to the Institute for Supply Management. With a value of 51.5, the Non-Manufacturing Index (NMI) is getting dangerously close to 50, below which point would indicate contraction. But for now August marks the 8th straight month of improvement.

Here's the chart provided by ISM, with some color coding and July data added:

ISM Services 2010-08.png

As you can see, July looked a lot better than August for services. Every single category worsened. But it's important to understand that the way these indices work, a category can decline in value, but still indicate growth.

That was the case for business activity and new orders, two very important indicators. They're both growing more slowly, but still growing. Meanwhile, just about all of the other important indicators are contracting. The change in trend for employment and new export orders are particularly worrisome. Meanwhile, inventories continue to grow and are still believed to be too high, which means that supplier hiring probably won't need to ramp up much to meet the current rate of new orders.

Overall today's report isn't great news. Although the service sector is still growing, it's doing so more slowly. We definitely don't want to see this growth slow down. After all, it was already pretty weak as evidenced by how few jobs the public sector added in August.

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