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First Cut: ISM Non-Manufacturing Index up a bit in October, expanding for 117 months in a row

The ISM Non-Manufacturing Index rose 2.1 points to 54.7 in October from 52.6 in September. Some survey respondents noted that the end of the fiscal year brought in new business and that may have accounted for much of the increase. Otherwise, while service sector businesses remained cautiously positive, trade and tariff policy still weighed on the outlook. The index remained in expansion for a 117th straight month and looks set to stay there for the time being, unlike its manufacturing counterpart which has been in recession for three months.

The four index components all rose in October. Business activity was up to 57.0 from 55.2 in September. Supplier delivery times lengthened to 52.5 from 51.0 and the index was the highest since 53.5 in February. The index for employment was up to 53.7 in October from 50.4 in September. Service sector businesses hired cautiously but like many in the manufacturing sector, there was a lack of skilled workers to fill available positions.

The new orders index was up to 55.6 in October after 53.7. Order backlogs — which is not a component of the index unlike new orders — fell to 48.5 from 54.0. Some of that is a retreat after a 5.0 point gain in the prior month. However, backlogs have been contracting in two of the past three months and suggest that if orders remain low, the business plans for the near future will remain tentative. Part of this is the lack of export orders.

The index for new export orders fell to 50.0 in October, its lowest since 48.0 in January 2017. Slow global growth and uncertain trade policy have stymied demand from abroad. The index for imports fell to 48.5, in contraction for a second month and the lowest since 48.5 in February 2019 and May 2017, and before that at 46.0 in January 2016.

Inventories continued to reflect vigilance about accumulation of unwanted items at 50.5 in October from 53.0 in September. Sentiment that inventory is too high remained consistent with concerns about slower conditions at 57.0 in October after 58.0 in September. Still, these are not as high as earlier in 2019 when signs of slower economic growth first appeared. Businesses adapted quickly.

The index for prices paid fell to 56.6 in October after 60.0 in September and remains about in line with the rest of 2019. A brief uptick in energy costs was probably behind the rise in September and the subsequent unwinding reduced upward pressure on prices.


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