ISM Non-Manufacturing: A Stunning September PMI Bounce

The Institute of Supply Management (ISM) has now released the September Non-Manufacturing Purchasing Managers' Index (PMI), also known as the ISM Services PMI. The headline Composite Index is at 57.1 percent, a stunning 5.7 percent bounce from last month's disappointing 51.4 percent. Today's number came in well above the forecast of 53.0 percent. The September bounce is the largest month-over-month increase in the history of this series.

Here is the report summary:

"The NMI® registered 57.1 percent in September, 5.7 percentage points higher than the August reading of 51.4 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased substantially to 60.3 percent, 8.5 percentage points higher than the August reading of 51.8 percent, reflecting growth for the 86th consecutive month, at a noticeably faster rate in September. The New Orders Index registered 60 percent, 8.6 percentage points higher than the reading of 51.4 percent in August. The Employment Index increased 6.5 percentage points in September to 57.2 percent from the August reading of 50.7 percent. The Prices Index increased 2.2 percentage points from the August reading of 51.8 percent to 54 percent, indicating prices increased in September for the sixth consecutive month. According to the NMI®, 14 non-manufacturing industries reported growth in September. The comments from the respondents are mostly positive about business conditions and the overall economy. A degree of uncertainty does exist due to geopolitical conditions coupled with the upcoming U.S. presidential election." [Source]

Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 60.3 percent is up 8.5 percent from a seasonally adjusted 51.8 the previous month and the highest reading since October 2015.

ISM Non-Manufacturing

For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualizing the short-term trends.

Theoretically, this indicator should become more useful as the timeframe of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains our intention to keep this series on the radar.

Here is a table showing trend in the underlying components.

Here is a link to our coverage of the latest ISM Manufacturing report.