Despite decline, ISM reports October non-manufacturing output is solid

While the data trended down from September, non-manufacturing activity in October remained on solid footing, according to data issued by the Institute for Supply Management (ISM) in its Non-Manufacturing Report on Business.

The index ISM uses to measure non-manufacturing growth—known as the NMI—came in at 54.8 (a level of 50 or higher indicates growth), down 2.3 percent from September, with economic growth for the non-manufacturing sector now intact for 81 consecutive months. The October NMI is even with the 12-month average of 54.8.

Each of the report’s four key metrics, including the NMI, declined from September to October. Business activity/production fell 2.6 percent at 57.7 while still growing for the 87th month in a row, and new orders were off 2.3 percent to 57.7 also growing for the 87th consecutive month. Employment was off 4.1 percent to 53.1 and grew for the fifth straight month.

ISM said that 13 non-manufacturing industries saw growth in October, including Transportation & Warehousing; Construction; Other Services; Management of Companies & Support Services; Information; Professional, Scientific & Technical Services; Real Estate, Rental & Leasing; Wholesale Trade; Utilities; Finance & Insurance; Retail Trade; Accommodation & Food Services; and Health Care & Social Assistance. The five industries contracting in October were: Educational Services; Mining; Agriculture, Forestry, Fishing & Hunting; Public Administration; and Arts, Entertainment & Recreation.

Comments submitted by ISM member respondents in the report were largely positive. A construction respondent cited how his company secured lots of new clients, with division business booming, and a finance and insurance respondent noted that the economy is being stabilized, with all segments doing fairly well.

“There was slow growth in October, coming off of huge uptick in September,” said Tony Nieves, chair of the ISM Non-Manufacturing Committee. “Even with this cooling off, things are still at a good level month-over-month. It is kind of a natural regression and not a situation where things are falling apart here. Over all, both business activity and new orders are still very strong, and employment is a cycle thing, as last month’s strong hiring pace cannot really be sustained for a long period. It’s still a decent report.”

Other notable metrics in the report included:
-supplier deliveries down 0.5 percent at 50.5 (above 50 for this metric means it contracted);
-prices up 2.6 percent to 56.6;
-backlog of orders flat at 52.0; and
-inventories up 0.5 percent to 52.0

“Things are in good shape for the most part, looking ahead to next month we need to see what happens with business activity,” explained Nieves. “Right now, the capacity situation seems fine but could see a strain should November see an uptick.”