ISM Non-Manufacturing: Slower Growth In October

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by: Doug Short

By Jill Mislinski

The Institute of Supply Management (ISM) has now released the October Non-Manufacturing Purchasing Managers' Index (PMI), also known as the ISM Services PMI. The headline Composite Index is at 60.3 percent, down 1.3 from 61.6 last month. Today's number came in above the Investing.com forecast of 59.3 percent.

Here is the report summary:

"The NMI registered 60.3 percent, which is 1.3 percentage points lower than the September reading of 61.6 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 62.5 percent, 2.7 percentage points lower than the September reading of 65.2 percent, reflecting growth for the 111th consecutive month, at a slower rate in October. The New Orders Index registered 61.5 percent, 0.1 percentage point lower than the reading of 61.6 percent in September. The Employment Index decreased 2.7 percentage points in October to 59.7 percent from the September reading of 62.4 percent. The Prices Index decreased 2.5 percentage points from the September reading of 64.2 percent to 61.7 percent, indicating that prices increased in October for the 32nd consecutive month. According to the NMI, 17 non-manufacturing industries reported growth. The non-manufacturing sector has again reflected strong growth despite a slight cooling off after a record month in September. There are continued concerns about capacity, logistics and tariffs. The respondents are positive about current business conditions and the economy." [Source]

Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows the Non-Manufacturing Composite. We have only a single recession to gauge its behavior as a business cycle indicator.

The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 62.5 percent is down 2.7 from a seasonally adjusted 65.2 the previous month.

ISM Non-Manufacturing

For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualize the short-term trends.

Theoretically, this indicator should become more useful as the time frame of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains our intention to keep this series on the radar.

Here is a table showing the trend in the underlying components.

Non-Manufacturing

Manufacturing

Index

Series Index Oct

Series Index Sep

Percent Point Change

Direction

Rate of Change

Trend** (Months)

Series Index Oct

Series Index Sep

Percent Point Change

NMI/PMI

60.3

61.6

-1.3

Growing

Slower

105

57.7

59.8

-2.1

Business Activity/ Production

62.5

65.2

-2.7

Growing

Slower

111

59.9

63.9

-4.0

New Orders

61.5

61.6

-0.1

Growing

Slower

93

57.4

61.8

-4.4

Employment

59.7

62.4

-2.7

Growing

Slower

56

56.8

58.8

-2.0

Supplier Deliveries

57.5

57.0

+0.5

Slowing

Faster

34

63.8

61.1

+2.7

Inventories

56.0

54.5

+1.5

Growing

Faster

9

50.7

53.3

-2.6

Prices

61.7

64.2

-2.5

Increasing

Slower

32

71.6

66.9

+4.7

Backlog of Orders

53.5

58.5

-5.0

Growing

Slower

10

55.8

55.7

+0.1

New Export Orders

61.0

61.0

0.0

Growing

Same

21

52.2

56.0

-3.8

Imports

51.0

55.0

-4.0

Growing

Slower

8

54.3

54.5

-0.2

Inventory Sentiment

62.0

59.5

+2.5

Too High

Faster

257

N/A

N/A

N/A

Customers' Inventories

N/A

N/A

N/A

N/A

N/A

N/A

43.3

40.5

+2.8

Overall Economy

Growing

Slower

110

Non-Manufacturing Sector

Growing

Slower

105

Non-Manufacturing ISM Report On Business data is seasonally adjusted for the Business Activity, New Orders, Prices and Employment Indexes. Manufacturing ISM Report On Business data is seasonally adjusted for New Orders, Production, Employment and Supplier Deliveries Indexes. *Number of months moving in current direction.

Here is a link to our coverage of the latest ISM Manufacturing report.

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