The ISM Non-Manufacturing Index declined to 52.6 in September from 56.4 in August to reach its lowest since 51.4 in August 2016. Expansion in the service sector stretched out its run to 116 months, but increasingly challenging conditions for service sector businesses — in part related to trade and tariff policies that have affected costs and supply chains, and a slow global economy — makes the outlook less certain for its continuance. The ISM Manufacturing Index has been in contraction for the past two months. Without a rebound in orders, services could end up there as well.
Three of the four index components were down. There sharp declines for business activity which fell to 55.2 in September from 61.5 in August and new orders which dropped to 53.7 from 60.3 and was the lowest since 51.4 in August 2016. Order backlogs — not an index component — was up to 54.0 in September, a rebound from 49.0 in August, and more in line with the recent trend. Employment dipped to 50.4 from 53.1, and was the lowest since 50.7 in August 2016. Supplier deliveries were essentially unchanged at 51.0 as the index idled near neutral for a sixth month in a row.
The inventory index declined to 53.0 in September from 55.0 in August and has been keeping upward movement to a minimum. Inventory sentiment rose to 58.0 from 56.0 and suggested that businesses are worries about rising stocks on hand.
The index for export orders improved to a mild 52.0 in September after 50.5 in August. However, there is no sign of any substantive upward momentum in export orders in the past few months. Imports declined to 49.0 from 50.5, maintaining a pace that is more-or-less neutral in recent months.
The index for prices paid rose to 60.0 in September, the highest since 64.3 in in November 2018. Businesses are feeling increased costs related to tariffs.
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