ISM services index beats expectations, hits 11-month high

Service sector activity improved a lot more than expected in September, hitting an 11-month high, according to figures released on Wednesday.

The Institute for Supply Management’s index of non-manufacturing activity rose to 57.1 from 51.4 in August, comfortably beating expectations for a reading of 53.0.

Meanwhile, the non-manufacturing business activity index rose to 60.3 from August’s 51.8, reflecting growth for the 86th consecutive month, at a noticeably faster rate in September.

The new orders index printed at 60, up from 51.4, while the employment index increased to 57.2 from 50.7.

“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 US presidential election,” the ISM said.

Pantheon Macroeconomics said: "We were never convinced that the drop in the August ISM was anything more than noise, likely triggered by the extensive flooding in Louisiana and Mississippi in late August. The index fell sharply after Hurricane Katrina in 2005, and the storms this year dropped three times the volume of rain. Over time, the ISM non-manufacturing index tends to track the rate of increase of core retail sales, and the August reading just looked far too
low; now it has overshot a bit.

"The details show orders, both domestic and export, rising strongly, but the real standout number is the employment index, which jumped to 57.2 from 50.7, also reaching an 11-month high. If sustained at this level, the index is consistent with payroll growth of 250K-plus by November; the index leads by a couple of months. That's probably asking too much, given the shortage of qualified people available for work, but it is very comforting."