HomeContributorsFundamental AnalysisUS: Non-Manufacturing Sector Momentum Remains Upbeat in October

US: Non-Manufacturing Sector Momentum Remains Upbeat in October

After surging an impressive 4.5 points in the month prior, the Institute for Supply Management’s (ISM) non-manufacturing index improved further in October, rising 0.3 points to 60.1 – the highest reading since 2005. Today’s print surprised on the upside with market consensus expecting a decline to 58.5.

Among the main subcomponents, business activity (+0.9 to 62.2) and employment (+0.7 to 57.5) recorded small improvements and extended their streak of monthly gains to three months. Meanwhile, the supplier deliveries index remained unchanged at 58 indicating slower deliveries for a second consecutive month, with industry comments pointing to hurricane-related supply shortages and transportation delays.

New orders pulled back slightly (-0.2) but remained elevated at 62.8, whereas new export orders improved markedly (+4 to 60).

The prices paid sub-index fell 3.6 points, ending four months of gains, leaving the index at 62.7 in October – still one of the best prints since 2012.

Comments from survey contacts continue to point to a positive outlook for fourth-quarter business conditions, with sixteen industries reporting growth in October. Educational Services; and Arts, Entertainment & Recreation were the two industries that recorded a contraction in activity.

Key Implications

Contrary to its manufacturing equivalent which retreated in October, the ISM non-manufacturing index held on to recent gains. Improvements in business activity and employment sub-indices are indeed very encouraging, but perhaps more significant is the support from the supplier deliveries sub-index which remained unchanged after spiking nearly 8 points last month. Given the latter, improved delivery times as per a return to normalcy could lead to some near-term giveback in the headline.

Still, the underlying trend remains an encouraging one, with broad underlying strength among the main sub-components reinforcing the notion that the services sector continues to expand at a solid clip. Rebuilding efforts should provide added support to this trend through the end of the year, boding well for another above-trend GDP print in the fourth quarter.

TD Bank Financial Group
TD Bank Financial Grouphttp://www.td.com/economics/
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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