ISM's survey of non-manufacturing managers jumped again in September coming in sharply higher than expected and hitting its highest level since August 1997. Employment grew sharply -- when issued prior to employment reports, this is a reliable predictor of non-farm payroll growth and suggests a stronger number on Friday. Upward price pressures are increasingly a concern across sectors (see anecdotal comments below) and bear watching going forward. Looking at longer-term trends, business activity in the services, construction, and government sectors of the economy continues to grow at a brisk pace, the fastest pace of this economic cycle.
The ISM Non-Manufacturing Index
ROSE by 3.1 points in September to 61.6%, compared with market expectations for a larger decline to 58.0%. The September reading was modestly higher than its average level over the past 12 months. That said, the current level of the index indicates that the economy is growing swiftly.
Quotes from the Survey:
- New Orders rose by 1.2 points to 61.6%.
- Order Backlogs increased modestly and Inventories increased modestly.
- Employment grew by 5.7 points to 62.4% , indicating that upcoming employment report will likely be higher than last month's print.
- Prices increased by 1.4 points to 64.2%.
- “[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)