Even with some slight declines in its key metrics, the September edition of the Non-Manufacturing Report on Business from the Institute for Supply Management (ISM) remained firmly in growth mode.
The index ISM uses to measure non-manufacturing growth—known as the NMI—came in at 56.9 in September (a level of 50 or higher indicates growth), a 2.1 percent decrease from August’s 59.0, and 3.4 percent off from July’s 60.3, which is its highest reading since January 2008. The September PMI is 0.4 percent below the 12-month average of 57.3. The non-manufacturing sector has grown for 68 straight months, while the over all economy has grown for 74 straight months.
Three of the report’s four key metrics, including the NMI, were down in September. Business Activity/Production was down 3.7 percent to 56.9, and new orders were off 6.7 percent to 56.7. Employment was the lone key metric on the right sight of growth, up 2.3 percent to 58.3.
Comments submitted by ISM member respondents for the report were mixed to a degree, which is in some ways reflective of the current economic outlook.
An information services respondent noted that the turmoil in Europe has not affected business, while an educational services respondent indicated the outlook is improving and economic conditions are stabilizing. And a retail trade respondent said that recent economic turmoil has caused sales to drop, noting he feels it is only temporary if the stock market returns to normal.
“July was such a strong month, and we had a slight dip in growth in August and now we see a bit more of a cooling off in September,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee. “A dip in retail trade is driving some of that, as well as a decline in the mining sector, too, which is reflected in the new orders and NMI numbers. Some of that also has to do with a dip in consumer psyche and consumer confidence right now as it relates to the economic turmoil at the moment.”
Despite some uneven activity over all, Nieves said it was encouraging to see the 2.3 percent gain to 58.3 in the employment index, which suggests that hiring is occurring more so on the industrial and commercial side as opposed to the retail side.
September supplier deliveries were flat compared to August at 52.5, and inventories dropped 3.5 percent to 51.0. Prices and backlog of orders fell 2.4 percent and 2.0 percent to 48.4 and 54.5, respectively.
Nieves said that even with these declines, the fact that growth is still occurring for inventories and backlog or orders is key, with things over all serving as more of a correlation to current economic conditions.
With the fourth quarter underway, Nieves explained that the current economic environment leaves him curious to see what the fourth quarter brings heading into the holiday season in terms of it there is any type of significant momentum.
“I think that this again will be consumer reliant, coupled with some of the saber-rattling going on overseas,” he said. “There are many external factors beyond the control of the U.S. economy right now. It is going to be more of a wait and see thing, but we are still in decent shape…even if things move sideways a bit and things continue to slow down more or worsen overseas.”