Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 

Blog Home
   Brian Wesbury
Chief Economist
 
Bio
X •  LinkedIn
   Bob Stein
Deputy Chief Economist
Bio
X •  LinkedIn
 
  The ISM Non-Manufacturing Index Declined to 56.7 in September
Posted Under: Employment • GDP • Government • Inflation • ISM Non-Manufacturing • Fed Reserve • Interest Rates • Spending
Supporting Image for Blog Post

 

Implications:  The two big ISM reports this week were a great display of the divergence in the US economy between the goods sector and service sector.  The ISM Manufacturing index fell in September to the lowest level since the early days of the recovery from the COVID shutdown.  Meanwhile, although it declined slightly for the month, the ISM Services index beat expectations, coming in at a hearty 56.7, with fifteen of eighteen service industries reporting growth.  The service sector does have some blemishes.  Survey comments have begun to cite a general slowdown in sales, blaming inflationary concerns, consumer uncertainty, and hiring challenges for holding activity back.  These effects can be seen in the indexes for business activity and new orders – the two most forward-looking pieces of the report – which both declined in September.  Despite this, both indexes still sit comfortably in expansion territory, and only slightly off their highest levels of 2022.  Future activity in the service sector will be a battle between rising demand as consumers shift their spending preferences away from goods toward the still-reopening services side, and the inflation, supply chain disruptions, and labor shortages that have plagued companies since the pandemic began.  Evidence of that transition can also be seen in the most recent report on personal income and spending; spending on goods fell 0.5% in August, while spending on services rose 0.8%.  We believe the service sector will lead the US economy higher in 2022, but it’s clear that were it not for the issues still lingering in the wake of poor pandemic-related policy decisions, the service sector would be doing even better.  A deeper dive into the details of the report offers positive news that some of these issues might be abating.  The supplier deliveries index, a measurement of lead-times for businesses, fell for the third consecutive month and sits at the lowest level since the recovery from the pandemic began.  Meanwhile on the inflation front, the index for prices paid declined for the fifth consecutive month to 68.7 and sits at the lowest level since late 2020.  Although that is far off from the 84.6 peak in April – make no mistake – inflation is still a major problem for companies, as all eighteen industries reported paying higher prices in September.  Finally, the best news in today’s report comes from the labor front, as the employment index increased further into expansion territory and now sits at a six-month high.  Despite large rate hikes, demand for labor in the service sector remains strong. We are forecasting that nonfarm payrolls rose 285,000 in September, which should give the Fed reason to maintain an aggressive path of rate hikes.

Click here for a PDF version

Posted on Wednesday, October 5, 2022 @ 11:55 AM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.