There’s a lot to like in this morning’s ISM Services report. The headline figure came in at 53.2, an improvement over last months reading of 51.5. A look under the hood shows some signs of hope as well as employment expands and new orders pick-up (via Econoday):
“The non-manufacturing sector showed month-to-month strength in September, an important indication for second-half economic growth. The ISM’s non-manufacturing composite rose more than 1-1/2 points to 53.2, right in line with the year’s trend which is 53.6. New orders had been slowing but picked up nicely, up 2-1/2 points to 54.9. Backlog orders, however, did contract slightly, below 50 at 48.0 for the weakest reading since February. Still, the rise in new orders hints at rising backlogs in the months ahead.
Business activity did slow, down about 1-1/2 points to 52.8 for its slowest reading since January. Business activity is akin to a production index. Employment rose two points to 50.2 to show no month-to-month change in what is an uncertain indication for Friday’s employment report. In other readings, inventories fell and export orders were strong though both categories are less important on the non-manufacturing side than for manufacturers.
A significant slowing in delivery times is a definitive sign of strength in this report, at 55.0 for the highest reading in more than two years. The non-manufacturing sector shows plenty of activity, news that is sending stocks higher.”
Comments from respondents were more muted than the report:
- “General state of the business has not changed in the last three months. The market is still soft for new sales due to financing requirements.” (Construction)
- “Business seems to be flat from last month.” (Finance & Insurance)
- “Signs that the economy may be improving, but our sector is still flat or declining.” (Professional, Scientific & Technical Services)
- “Business activity is generally stable — slightly better than last year.” (Accommodation & Food Services)
- “Third quarter is looking profitable with improving confidence and expectations in the economy. Capital expenditures are being approved.” (Wholesale Trade)
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.