October 5, 2016

ISM Non-Manufacturing Jumps the Shark: Sept. Value Is 57.1 Percent, Up From 51.4 Percent in August; Markit’s Value is 52.3 Percent

Filed under: Economy — Tom @ 10:46 am

The positive selection-driven ISM Non-Manufacturing Index just rose by the largest amount ever (bolds and most paragraph breaks are mine):

(Tempe, Arizona) — Economic activity in the non-manufacturing sector grew in September for the 80th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The NMI® registered 57.1 percent in September, 5.7 percentage points higher than the August reading of 51.4 percent. This represents continued growth in the non-manufacturing sector at a faster rate.

The Non-Manufacturing Business Activity Index increased substantially to 60.3 percent, 8.5 percentage points higher than the August reading of 51.8 percent, reflecting growth for the 86th consecutive month, at a noticeably faster rate in September.

The New Orders Index registered 60 percent, 8.6 percentage points higher than the reading of 51.4 percent in August. The Employment Index increased 6.5 percentage points in September to 57.2 percent from the August reading of 50.7 percent.

The Prices Index increased 2.2 percentage points from the August reading of 51.8 percent to 54 percent, indicating prices increased in September for the sixth consecutive month.

According to the NMI®, 14 non-manufacturing industries reported growth in September. The comments from the respondents are mostly positive about business conditions and the overall economy. A degree of uncertainty does exist due to geopolitical conditions coupled with the upcoming U.S. presidential election.”


The 14 non-manufacturing industries reporting growth in September — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Utilities; Retail Trade; Management of Companies & Support Services; Information; Health Care & Social Assistance; Transportation & Warehousing; Finance & Insurance; Construction; Other Services; Wholesale Trade; Public Administration; Accommodation & Food Services; and Professional, Scientific & Technical Services.

The four industries reporting contraction in September are: Mining; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; and Educational Services.

Backlog of Orders, the other GDP driver besides New Orders and Business Activity/Production, went from tiny contraction (49.5 percent) into expansion (52.0 percent).

The ISM result is so at variance with the hard-data numbers seen in so many reports in the past several days that it’s hard to take it seriously — which is very unfortunate, because ISM used to be the gold standard of business sentiment.

By contrast, “Markit’s Services PMI bounced modestly in September to 52.3, but ‘business optimism about the year ahead is at one of the lowest levels seen since the global financial crisis.’” Markit believes that “even with the latest increase the surveys are indicating that the economy is growing at an annualized rate of only 1%.”

Wish it weren’t so, but Markit seems far closer to the mark than ISM.


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