US: ISM Non-Mfg Index

Wed Oct 04 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Composite Index - Level 55.5 54.0 to 56.2 59.8 55.3

Orders and employment continued to rise through September in ISM's non-manufacturing sample which is showing no worrisome effects from Hurricanes Harvey and Irma. The headline index jumped to 59.8 for the highest score in more than 3 years. New orders, that include strength for exports, jumped nearly 5 points to a robust 61.3 level that was last exceeded in April this year. Backlog orders jumped 2.5 points to 56.0 which helped employment rise 6 tenths to 56.8 with both these readings the strongest since May this year.

Hurricane effects slowed deliveries very sharply, up 7.5 points to 58.0 and are a major contributing factor to the strength in the headline index (slower deliveries are positives in the index's calculation). Input prices also show hurricane effects, up more than 9 points to 66.3 for the highest reading in 5-1/2 years. Inventories continued to build but at a slightly slower pace in a likely effect tied to hurricane-related transportation snags.

The gain in employment is a positive indication for Friday's employment report while the strength in new orders and backlogs point to a strong ending for the third quarter and strength ahead for the fourth quarter. Yet this report, based on sample sizes that aren't specifically listed and responses that are voluntary, has been strong all year, often running in excess of actual service sector growth.

Market Consensus Before Announcement
ISM non-manufacturing had been surging earlier in the year but began to moderate through most of the summer. Yet readings were still very strong with new orders, business activity and employment all in the upper 50s. Econoday's call for the September headline is 55.5 vs August's 55.3.

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.