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September non-manufacturing activity flourishes, reports ISM

The index ISM uses to measure non-manufacturing growth—known as the NMI—rose 4.5% to 59.8 (a reading above 50 indicates growth), following August’s 1.4% gain over July for its highest reading going back to August 2005’s 61.3. The PMI has now grown for 93 consecutive months and is 3.3% higher than the 12-month average of 56.5.

By ·
By ·

Non-manufacturing activity in September followed the path laid out in August, with continued growth, according to the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business, which ISM issued today.

The index ISM uses to measure non-manufacturing growth—known as the NMI—rose 4.5% to 59.8 (a reading above 50 indicates growth), following August’s 1.4% gain over July for its highest reading going back to August 2005’s 61.3. The PMI has now grown for 93 consecutive months and is 3.3% higher than the 12-month average of 56.5.

ISM said that 15 non-manufacturing industries reporting growth in September, including: Retail Trade; Other Services; Management of Companies & Support Services; Information; Utilities; Transportation & Warehousing; Real Estate, Rental & Leasing; Wholesale Trade; Construction; Professional, Scientific & Technical Services; Finance & Insurance; Health Care & Social Assistance; Public Administration; Educational Services; and Accommodation & Food Services. The two industries reporting contraction in were Arts, Entertainment & Recreation; and Mining.
Including the PMI, each of the report’s core metrics saw gains in September.

Business activity/production headed up 3.8% to 61.3, growing for the 98th consecutive month. New orders rose 5.9% to 63 and also grew for the 98th consecutive month, with 15 industries reporting growth for this reading. Employment eked out a 0.6% gain to 56.8, showing growth for the 43rd consecutive month. Inventories fell 2.0% to 51.5 while still growing for the sixth straight month.

Comments submitted to the report by ISM member respondents were largely positive.

A health care and social assistance respondent indicated that “business continues to grow at a good pace, and in information services respondent said that the general outlook is looking up, with sales picking up.

The impact of recent Hurricanes was echoed as well, with an accommodation and food services respondent saying that Hurricane Irma caused a revenue challenge that will take some time to recover from, interrupting business operations in that region and offsetting growth in others. A professional, scientific, and technical services respondent explained that Hurricane Harvey has been a disruption to normal business activity in the oil and gas industry, as refineries and petrochemical plants were shut down along with many offices along the Gulf Coast, as business is only now returning to some sense of normalcy.

Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, said in an interview that growth for all the key metrics was strong.

“The decline in inventories was expected, considering how much volume was handled from month to month, but was anticipated with the [inventory] burn off,” he said. “It looks like everything is lining up, with supplier deliveries slowing [58.0 in September, a reading above 50 indicates contraction] as they should, new orders growing, and employment seeing a slight uptick. The rate of slow growth boils down to the labor pool, as the unemployment rate is low and the areas that do need to have job growth are seeing a shortage of skilled labor in the construction arena. So you are not going to see that growth you normally see with the economy going as strong as it is.

Pricing in September climbed 8.4% to 66.3, with the majority of that gain due to petroleum and petroleum-based products, as well as food-related gains, and increasing labor costs, too. Nieves pointed out that there does not appear to be any cause to worry about inflation at this time, along with a current lack of pricing power, because products that are still competitively priced are seeing transparency on the retail side that has not been seen before.

Nieves said that looking at non-manufacturing in 2017 through the first nine months of the year, things are better than expected.

“We saw the so-called ‘Trump bump’ back in the latter part of 2016 and thought it might falter a bit in 2017, but it has continued its momentum with a couple of dips here and there,” he said. “We have had a strong business and economic outlook for 2017, and our respondents have said going back a few months ago that this momentum will build into the fourth quarter, and that is exactly what we are seeing. We will have to see how that impacts retail sales, but there seems to be some spending going on. The [recent hurricanes] are also going to promote spending even though it has affected the continuity of supply and a bit of the supply chain, with a need for building materials in affected areas and a large need for vehicles to replace ones that had water damage.”

 


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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Article Topics

ISM · NMI · Non-Manufacturing · All Topics
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