ISM Service Sector Index (NMI) Hits All-Time High, Employment Index Sets Record

The Institute for Supply Management (ISM) Non-Manufacturing Index (NMI) for the U.S. service sector hit an all-time high of 61.6% in September, easily beating the consensus forecast. Economists had come to a consensus for the reading at 58.0%.

This is the strongest reading ever for the composite index, which was established in 2008. The survey itself was established in 1997.

“The Non-Manufacturing Business Activity Index rose 4.5% to 65.2% in September, reflecting growth for the 110th consecutive month, at a faster rate in September. The New Orders Index came in at 61.6%, a gain of 1.2% from the reading of 60.4% in August.

The Employment Index hit a new all-time high in September, rising 5.7% to 62.4% from the August reading of 56.7%. The Prices Index increased 1.4% from the August reading of 62.8% to 64.2%, indicating that prices increased in September for the 31st consecutive month.

“According to the NMI, 17 non-manufacturing industries reported growth,” said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee. “The non-manufacturing sector has had two consecutive months of strong growth since the ‘cooling off’ in July.”

“Overall, respondents remain positive about business conditions and the current and future economy,” Mr. Nieves added. “Concerns remain about capacity, logistics and the uncertainty with global trade.”

The White House just announced the successful renegotiation of the North American Free Trade Agreement (NAFTA), which will be replaced with the United States Mexico Canada Agreement (USMCA). The U.S. Congress must have a say, but the survey was taken before the announcement, which expectedly will ease some fears.

What Respondents Told the ISM NMI Survey Committee

• “[Additional] logistics costs, both inbound and distribution, caused by increased governmental regulation, and a shortage of class-A drivers is leading to a significant increase in [the] cost of goods [sold].” (Accommodation & Food Services)
• “New residential construction market is still strong, with a good backlog of orders. Labor shortages and tariffs on materials continue to negatively weigh on earnings.” (Construction)
• “Economy continues to exhibit strength. New construction, both residential and commercial, abounds. Harvest [is] about over. Overall, results appear promising. Every day is a bit better than the last.” (Finance & Insurance)
• “Business activity has been slightly higher than normal, though pharmaceutical costs continue to put pressure on profitability.” (Health Care & Social Assistance)
• “Starting peak holiday season ramp-up, [with] heavy importing. Building inventories of finished goods, replacement parts and supplies. Outlook very positive for [the] holidays and 2019.” (Information)
• “Business generally remains strong, with new services being implemented.” (Management of Companies & Support Services)
• “Prices and supply have flattened, and tariff concerns have subsided for our business [at least for the duration of 2018]. Things seems to be stabilizing.” (Mining)
• “Overall positive outlook in the economy continues, but we are cautious due to limitations in available manpower.” (Professional, Scientific & Technical Services)
• “Business activity is up sharply due to the rush of purchase requests received prior to fiscal year 2018 funds expiring on September 30.” (Public Administration)
• “Our general state of business is strong, but there is a lot of uncertainty [about] the pending tariffs. This may cause a shift [in] production sites.” (Retail Trade)
• “Import tariffs on steel, plywood, and [other] lumber are inflating prices, which are difficult to pass along to the end user due to competitive pressures. Labor and trucking shortages are affecting the industry. Low finished goods inventory is inflating home prices and causing buyers to delay purchases.” (Wholesale Trade)