Imagine the economy as a high-speed car, with manufacturing and services as its twin engines. When one engine slows slightly, should we panic? Not necessarily. The latest ISM (Institute for Supply Management) non-manufacturing report delivers a clear message: even if key metrics dip marginally, the broader non-manufacturing sector remains robust.
The NMI Index: A Barometer of Economic Health
ISM measures non-manufacturing growth through its NMI (Non-Manufacturing Index), an economic barometer where readings above 50 signal expansion. September’s NMI stood at 58.6—down modestly from August’s 59.6 but still reflecting vigorous growth. Notably, August’s figure marked the highest since the index was introduced in January 2008, making September’s dip more akin to a slight speed adjustment than a sudden brake.
Critically, the non-manufacturing sector has now expanded for 56 consecutive months—over four and a half years of steady growth underpinning the U.S. economic recovery. September’s PMI (Purchasing Managers’ Index) also outperformed its 12-month average of 55.4 by 3.2%, further underscoring the sector’s resilience.
Why Non-Manufacturing Matters
Non-manufacturing dominates economic activity, spanning industries from hospitality and finance to healthcare, education, and entertainment. Its performance directly influences employment, consumer spending, and overall economic stability.
Breaking Down the NMI Components
To fully assess the sector’s health, examine NMI’s four core sub-indices:
- Business Activity Index: Tracks production and service output. Higher values indicate stronger economic momentum.
- New Orders Index: Reflects incoming demand. Rising orders signal future growth.
- Employment Index: Measures hiring trends. Elevated readings suggest labor market strength.
- Supplier Deliveries Index: Gauges supply chain efficiency. Higher values point to logistical bottlenecks.
Divergences among these metrics reveal underlying trends. For instance, robust activity and orders paired with weak employment could signal productivity gains without job creation.
Behind September’s Modest Pullback
The slight NMI decline may stem from seasonal factors (e.g., back-to-school shifts in retail and education), global economic uncertainty, or tempered business investment. Such fluctuations are typical in long-term expansions.
Outlook: Steady Growth Ahead
While vigilance is warranted—particularly regarding global headwinds—the sector’s fundamentals remain solid. Short-term volatility shouldn’t overshadow 56 months of growth. By focusing on NMI’s structural insights, businesses and policymakers can navigate economic cycles with greater clarity.