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ISM Non-Manufacturing: Resilient Services Sector Rebounds

November 5, 2019

Bottom Line: Business activity in the services, construction, and government sectors of the economy accelerated slightly more than expected. New order growth rebounded to levels just below the 6-month average. Order backlogs fell, but inventory growth decelerated. Employment rebounded. Overall, anecdotal evidence suggests non-manufacturing managers remain optimistic about their growth prospects even as the wholesale trade sector struggles with trade uncertainty.

The ISM Non-Manufacturing Index ROSE by 2.1 points in October to 54.7%, compared with market expectations for a increase to 54.0%.
The October reading was slightly lower than its average level over the past 12 months. That said, the current level of the index indicates that the economy is growing modestly.

  • New Orders rose by 1.9 points to 55.6%.
  • Order Backlogs declined moderately and Inventories increased slightly.
  • Employment grew by 3.3 points to 53.7% , indicating that upcoming employment report will likely be higher than last month's print.
  • Prices fell by 3.4 points to 56.6%.

Quotes from the Survey:

  • “Labor shortage remains a major factor in the increased cost of logistics.” (Accommodation & Food Services)
  • “Current outlooks for commodities, equipment, and materials indicate purchasing now has leverage. Investment is still hampered by uncertainties in trade, global economic environment, manufacturing and the like.” (Construction)
  • “Wrapping up fiscal year budgets — overall outlook is positive.” (Finance & Insurance)
  • “Our business remains at the same level. There is no expectation for new orders, since clients normally do not make capital-expenditure decisions in the last quarter. Our only expectation is with regards to the U.S.-China trade deal outcome.” (Mining)
  • “Positive-but-cautious outlook, with oil prices hovering above [US]$50 a barrel.” (Professional, Scientific & Technical Services)
  • “Beginning of a new fiscal year brings a tremendous amount of spending.” (Public Administration)
  • “Business remains brisk and well ahead of last year to date, as we near the peak of our busiest season. Looking ahead, our customers remain upbeat about their business well into next year.” (Real Estate, Rental & Leasing)
  • “Preparing for an increase in holiday revenues.” (Transportation & Warehousing)

  • Business is still lower than this time last year due to tariff issues and a soft market.” (Wholesale Trade)

Article by Contingent Macro Advisors