US: ISM Non-Mfg Index

Fri Nov 03 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Composite Index - Level 58.6 56.0 to 60.0 60.1 59.8

ISM's non-manufacturing sample continues to report unusual strength, at a composite score of 60.1 which just tops Econoday's high estimate and is the strongest showing since the height of the previous expansion in 2004. New orders, at 62.8, are unusually strong with export orders at a very positive 60.0. Backlogs are up, inventories are building, and employment, at 57.5, is at a 6-month high. Delivery delays reflect the overall pace of activity and probably also lingering hurricane effects. Input prices are elevated but down from September.

ISM non-manufacturing, which has been strong all year, tracks not only services but also construction and mining, two industries reporting some of the greatest strength in the month and giving the report a general lift compared to this morning's service sector report from Markit which excludes these two industries and which shows less strength. But taken together, the reports point to steady and solid momentum for the bulk of the U.S. economy.

Market Consensus Before Announcement
ISM non-manufacturing re-accelerated in September to 59.8 and the highest score in 3 years. Orders and employment in ISM's sample have been very strong while deliveries, tied to Hurricanes Harvey and Irma, have slowed sharply. Econoday's call for October is 58.6.

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.