- The Institute for Supply Management’s (ISM) Services Index (formerly Non-Manufacturing Index) increased by 0.9 points in September to 57.8. The outturn was better than expected, with market expectations calling for a mild decline to 56.1.
- The details of the report were mostly upbeat, with three of the four subcomponents improving on the month. New orders (+4.7 points to 61.5) led the way in improvements, followed by the employment subcomponent (+3.9 points to 51.8). The latter finally emerged above the 50-point threshold, after spending six months in contractionary territory. The business activity index recorded a milder improvement of 0.6 points to a healthy 63-point print.
- The supplier deliveries index fell 5.6 points to 54.9. This sub-index is inversed, with a reading of above 50 percent indicating slower deliveries, which is typical as the economy improves and customer demand increases.
- Among the remaining indicators, the prices sub-index fell 5.2 points to 59, indicating that prices increased in September at a slower rate.
- Sixteen services industries reported growth in September, with Professional, Scientific & Technical Services the only industry reporting a decrease on the month. Respondents’ comments remained mostly optimistic about business conditions and the economy, which correlates directly to those businesses that are operating.
Key Implications
- After taking a breather in August, the ISM services index notched a moderate improvement in September – a welcome surprise given expectations for a mild deceleration. With the index still well above the 50-point mark for the fourth consecutive month, it appears that activity in the services side of the economy is well-entrenched in expansionary territory through September.
- With the improvement fairly broad-based, the survey details offered more good news. Of note, the employment subcomponent, which has remained a sore spot since the onset of the pandemic, took another positive step in September, finally emerging into expansionary territory after a six-month hiatus. Respondents’ comments, which included “Calling back furloughed workers; We continue to hire to meet increased demand”, complemented the improvement.
- Looking ahead, we expect the U.S. services sector to continue following a positive growth trajectory. But, at the same time, as many of the low-hanging fruits have already been reaped, the recovery process is expected to shift into lower gear. What’s more, given the recent expiration of more generous unemployment benefits and the fact that the virus’ spread remains elevated, near-term risks appear generally tilted to the downside. A new stimulus package would go a long way in helping the recovery process along and easing downside pressures, but we have no firm positive signal on this front yet.
