After surging an impressive 4.5 points in the month prior, the Institute for Supply Management’s (ISM) non-manufacturing index improved further in October, rising 0.3 points to 60.1 – the highest reading since 2005. Today’s print surprised on the upside with market consensus expecting a decline to 58.5.
Among the main subcomponents, business activity (+0.9 to 62.2) and employment (+0.7 to 57.5) recorded small improvements and extended their streak of monthly gains to three months. Meanwhile, the supplier deliveries index remained unchanged at 58 indicating slower deliveries for a second consecutive month, with industry comments pointing to hurricane-related supply shortages and transportation delays.
New orders pulled back slightly (-0.2) but remained elevated at 62.8, whereas new export orders improved markedly (+4 to 60).
The prices paid sub-index fell 3.6 points, ending four months of gains, leaving the index at 62.7 in October – still one of the best prints since 2012.
Comments from survey contacts continue to point to a positive outlook for fourth-quarter business conditions, with sixteen industries reporting growth in October. Educational Services; and Arts, Entertainment & Recreation were the two industries that recorded a contraction in activity.
Key Implications
Contrary to its manufacturing equivalent which retreated in October, the ISM non-manufacturing index held on to recent gains. Improvements in business activity and employment sub-indices are indeed very encouraging, but perhaps more significant is the support from the supplier deliveries sub-index which remained unchanged after spiking nearly 8 points last month. Given the latter, improved delivery times as per a return to normalcy could lead to some near-term giveback in the headline.
Still, the underlying trend remains an encouraging one, with broad underlying strength among the main sub-components reinforcing the notion that the services sector continues to expand at a solid clip. Rebuilding efforts should provide added support to this trend through the end of the year, boding well for another above-trend GDP print in the fourth quarter.
