If opinion turns into fact, the ISM non-manufacturing survey for October 2010 says the economy is expanding. This reinforces the same conclusion from the ISM Manufacturing Survey reported Monday. The headlines:
Economic activity in the non-manufacturing sector grew in October for the 10th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®. …..”The NMI (Non-Manufacturing Index) registered 54.3 percent in October, 1.1 percentage points higher than the 53.2 percent registered in September, and indicating continued growth in the non-manufacturing sector at a slightly faster rate.
The Non-Manufacturing Business Activity Index increased 5.6 percentage points to 58.4 percent, reflecting growth for the 11th consecutive month at a substantially faster rate than in September.
The New Orders Index increased 1.8 percentage points to 56.7 percent, and the Employment Index increased 0.7 percentage point to 50.9 percent, indicating growth in employment for the second consecutive month and the fourth time in the last six months.
The Prices Index increased 8.2 percentage points to 68.3 percent, indicating that prices increased significantly faster in October.
According to the NMI, 11 non-manufacturing industries reported growth in October. Respondents’ comments remain mixed about business conditions and vary by industry and company. The trend of the overall comments indicates that there are signs of economic stabilization.”
It should be noted that the high in the ISM non-manufacturing in the last 12 months was 55.4 (April 2010). Econintersect believes new orders and backlog are the two primary elements of the bells and whistles analyzed in this ISM survey. Remember, this is a survey of business which is 80% of the private sector money flows (the other 20% is manufacturing). Survey’s offer an opinion of what the data which will be available in a month or two will look like. The ISM surveys have historically missed economic turning points.
According to the ISM:
ISM’s Non-Manufacturing New Orders Index grew in October for the 14th consecutive month. The index registered 56.7 percent, which is an increase of 1.8 percentage points from the 54.9 percent reported in September. Comments from respondents include: “Orders awarded that have been on customer hold” and “New projects approved.”
The 10 industries reporting growth of new orders in October — listed in order — are: Professional, Scientific & Technical Services; Mining; Educational Services; Finance & Insurance; Transportation & Warehousing; Accommodation & Food Services; Retail Trade; Information; Wholesale Trade; and Public Administration. The three industries reporting contraction of new orders in October are: Other Services; Construction; and Health Care & Social Assistance.
In the opinion of respondents, backlog grew in October – backlog growing indicates the economy is expanding. The ISM statement:
ISM’s Non-Manufacturing Backlog of Orders Index grew in October after one month of contraction. The index registered 52 percent, 4 percentage points higher than the 48 percent reported in September. Of the total respondents in October, 40 percent indicated they do not measure backlog of orders.
The seven industries reporting an increase in order backlogs in October — listed in order — are: Real Estate, Rental & Leasing; Mining; Utilities; Retail Trade; Accommodation & Food Services; Wholesale Trade; and Public Administration. The three industries reporting lower backlog of orders in October are: Agriculture, Forestry, Fishing & Hunting; Construction; and Health Care & Social Assistance.
It is interesting that hard data has seldom confirmed an increase in non-manufacturing backlog since the end of the Great Recession. Despite this fact, the survey reports growth. Part of the confusion is that in many non-manufacturing sectors do not have true backlog as manufacturing uses.
But as a means of correlating the ISM surveys, it appears the ISM non-manufacturing is saying the economy is growing at the same rate as July 2010. Based on the jobs increase in October, it does appear there was stronger economic growth than in the previous two months.