After rising to an all-time high in September, the Institute for Supply Management’s (ISM) non-manufacturing index backed off in October to 60.3. Though lower, the headline print still surpassed consensus forecast for a larger pullback to 59.1.
The details of the report were mixed, with six of the ten sub-components edging lower, three pushing ahead and one remaining unchanged. Of note, backlog of orders was down 5 points to 53.5, business activity 2.7 points to 62.5 and employment 2.7 points to 59.7. Labor availability continues to be a challenge and is contributing to the deceleration in employment growth. The prices paid index also fell 2.5 points to 61.0.
In the growth category, both inventories (+1.5 to 56.0) and inventory sentiment (+2.5 to 62.0) picked up. The uptick suggests that services providers may be building a buffer to withstand any possible supply disruptions on the horizon.
Trade-related subcomponents were mixed. While imports fell by four points to 51.0, there was no movement for new export orders (unchanged at 61.0).
Business owners in the non-manufacturing sector were generally upbeat about current business conditions and the economy, but they remained apprehensive about continued capacity constraints, logistical difficulties and tariffs.
Key Implications
After a roaring September, the ISM non-manufacturing index came in a tad tamer in October. Despite the modest pullback, the U.S. services sector is still exhibiting solid growth. The fact that 16 out of the 17 industries surveyed reported an expansion in business speaks to the broad-based nature of this growth.
As has been the theme in several reports, firms continue to walk a fine line between finding enough workers and navigating the price pressures and uncertainty associated with tariffs. The latter is important. While capacity constraints and labor shortages augur for greater investment, these may be difficult in an environment in which global supply chains are in a state of flux.
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