Another Good Services ISM; Outlier or Strengthening Economy?

For the second consecutive month the Non-Manufacturing ISM surprised to the upside.

In September, the NMI™ registered 55.1 percent, indicating continued growth in the non-manufacturing sector for the 33rd consecutive month. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

Index	Sept	Aug	Percentage Point Change	Direction	Rate of Change	Trend in Months
NMI™/PMI™	55.1	53.7	1.4	Growing	Faster	33
Business Activity/Production	59.9	55.6	4.3	Growing	Faster	38
New Orders	57.7	53.7	4	Growing	Faster	38
Employment	51.1	53.8	-2.7	Growing	Slower	2
Supplier Deliveries	51.5	51.5	0	Slowing	Same	2
Inventories	48.5	52.5	-4	Contracting	From Growing	1
Prices	68.1	64.3	3.8	Increasing	Faster	3
Backlog of Orders	48	50.5	-2.5	Contracting	From Growing	1
New Export Orders	50.5	52	-1.5	Growing	Slower	3
Imports	50	49.5	0.5	Unchanged	From Contracting	1
Inventory Sentiment	65	67	-2	Too High	Slower	184

Last month I was asked if the services ISM changed my view of recession. I wanted to see the jobs report first. The household survey had horrendous results for the second month.

Household Survey

• In September the number of people employed fell by 119,000.
• In the last two months, the number of people employed fell by 314,000!
• In the last year, the civilian population rose by 3,695,000. Yet the labor force only rose by 971,000.
• In September Civilian Labor Force fell by 368,000.
• In September those “not” in the labor force increased by 581,000 to a record 88.921 million
• In August, those "not" in the labor force increased by 348,000 to 88,340,000 a record at the time

Thus in the last two months those "not" in the labor force increased by 929,000.  This is not demographics!

Since then data has been generally poor, but mixed. Home prices give further indication of a bottoming process. Yet, Durable Goods Orders Ex-Transportation "Unexpectedly" Drop, Down Third Month, July Revised Lower

Moreover, US CEOs Sharply Reduce Expectations for Economic Outlook, Hiring; Third Largest Plunge in 6-Month Expectations in History.

Curiously, even with this strong services ISM, employment is weakening although still positive.

All in all, it is the ISM numbers that seem out of sync with most of the rest of the data, especially household survey numbers.

Once again, let's see what Friday brings, but this time, one solid month will not convince me in light of other weakening data.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com/

"Wine Country" Economic Conference Hosted By Mish

Click on Image to Learn More