US: ISM Non-Mfg Index

Thu Nov 03 09:00:00 CDT 2016

Consensus Consensus Range Actual Previous
Composite Index - Level 56.1 55.0 to 57.4 54.8 57.1

Much of the ISM non-manufacturing report, at a composite of 54.8, is strong with employment, however, an exception, down 4.1 points from September to a 53.1 level that points to a slower pace of hiring in October. But new orders are very solid, at 57.7 but again down from September's 60.6. Business activity is also at 57.7 but is also down from September. Backlog orders grew for a second month and export orders remained solid and costs for the sample are up in another positive indication on demand. Employment growth may be down, but this report, like the services PMI earlier this morning, is pointing to a solid fourth-quarter start for the bulk of the economy.

Market Consensus Before Announcement
The ISM non-manufacturing index surged to 57.1 in September following what was a recovery low of 51.4 in August. This comparison aside, the index has been very steady this year and has been consistently showing solid rates of growth for the bulk of the nation's economy. New orders were especially strong in September, up nearly 9 points to 60.0 with employment also very solid, up 6.5 points to 57.2. Forecasters see the index giving back only some of September's gain with the October consensus at 56.1.

The Institute For Supply Management surveys more than 375 firms from numerous sectors across the United States for its non-manufacturing index. This index covers services, construction, mining, agriculture, forestry, and fishing and hunting. The non-manufacturing composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the non-manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation. A reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries. However, slower deliveries are a plus for the economy -- indicating demand is up and vendors are not able to fill orders as quickly.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM non-manufacturing survey's composite index, investors will know what the economic backdrop is for the various markets. The non-manufacturing composite index has four equally weighted components: business activity, new orders, employment, and supplier deliveries. The ISM did not begin publishing the composite index until the release for January 2008. Prior to 2008, markets focused on the business activity index. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. While the ISM manufacturing index has a long history that dates to the 1940s, this relatively new report goes back to 1997.