The ISM Non-Manufacturing index suggests some growth

The positives that lifted the headline index were jumps in Business Activity and New Orders

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The ISM Non-Manufacturing index joined the Manufacturing Index in exceeding expectations in September.

While non-manufacturing industries have continued to expand in recent months - even while the manufacturing sector contracted slightly - the pace of expansion accelerated over the summer and more quickly than many thought was possible.

The positives that lifted the headline index were jumps in Business Activity (59.9 from 55.6) and New Orders (57.7 from 53.7).

Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management Non-Manufacturing Business Survey Committee, told LM that respondents’ comments continue to be mixed.

“The majority indicate a slightly more positive perspective on current business conditions,” he said.

But not all the news was good, said Paul Edelstein Director of Financial Economics IHS Global Insight. In particular, the Employment index fell to 51.1 from 53.8 in August, suggesting a softer pace of hiring in these industries.

“The Employment index has been trending higher since April, even while official job growth has slowed,” he said. “The decline is consistent with our view that the economy is unlikely to generate enough jobs to bring down unemployment.”

The other negative was a fall in the New Export Orders index to 50.5 from 52.0, essentially a neutral reading and a consequence of the Eurozone recession and slower growth in China.

The prices paid index – measuring input costs – increased to 68.1 from 64.3 signaling accelerating input cost inflation. Food, gasoline, and diesel prices were the main culprits, while natural gas prices fell. According to comments from respondents, the drought is, not surprisingly, pushing up food prices at the commodity and intermediate goods levels, even if they have not flowed fully into CPI food prices yet.

With the Manufacturing index now just above neutral and the Non-Manufacturing index pushing further into expansion territory, the Composite Manufacturing/Non-Manufacturing index increased 1.3 points to 54.5, also the highest since March.  This puts the third-quarter average at 53.5, slightly higher than the second-quarter average of 53.2 and consistent with our forecasts for moderate real GDP growth in the 1.5-2.0 percent range.

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

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