If the economy were a car, manufacturing and non-manufacturing sectors would be its dual engines. While manufacturing produces tangible goods, non-manufacturing encompasses a broader spectrum including services, construction, and retail. Recent data reveals how this crucial economic engine is performing.
The latest Non-Manufacturing Report from the Institute for Supply Management (ISM) indicates that while key metrics saw marginal declines in September, the sector remains robust, continuing to provide substantial support for economic growth.
NMI Index: Minor Retreat from Historic Highs
ISM's Non-Manufacturing Index (NMI), which measures sector growth, registered 58.6 in September — a slight decrease from August's 59.6. However, this remains significantly above the 50-point threshold that separates expansion from contraction. Notably, August's reading marked the highest level since the index's inception in January 2008, making September's modest pullback a normal fluctuation rather than cause for concern.
Sustained Expansion: A Four-Year Growth Streak
More impressive is the NMI's consistent performance: the index has remained above 50 for 56 consecutive months , demonstrating over four years of uninterrupted growth. This durability proves particularly valuable amid current economic uncertainties, serving as a stabilizing force for the broader economy.
PMI Outperforms Recent Averages
The Purchasing Managers' Index (PMI), another vital activity gauge, exceeded its 12-month average of 55.4 by 3.2 percentage points in September. This outperformance suggests the non-manufacturing sector isn't merely maintaining growth but actually accelerating compared to the past year's trends.
Decoding the NMI Components
To fully assess the sector's health, we must examine the NMI's four weighted components:
Business Activity Index: Measures output levels of services and commercial operations. Higher values indicate increased activity.
New Orders Index: Tracks incoming orders, reflecting demand strength.
Employment Index: Gauges hiring trends and labor market conditions.
Supplier Deliveries Index: Unlike other components, higher values here signal slower deliveries, potentially indicating supply chain constraints.
The Non-Manufacturing Sector's Economic Impact
This sector plays a multifaceted role in modern economies. Beyond generating substantial employment, it supports manufacturing through logistics, finance, and transportation services that enhance efficiency. Simultaneously, it directly improves quality of life via healthcare, hospitality, and entertainment services that elevate consumer well-being.
Future Outlook
Despite global economic headwinds and trade tensions, the non-manufacturing sector continues demonstrating remarkable adaptability. Its consistent performance suggests it will remain a key growth driver, though close monitoring of NMI sub-indices remains essential to identify emerging risks.
The September data ultimately delivers an encouraging message: while experiencing routine fluctuations, America's non-manufacturing engine continues running strong, providing reliable momentum for sustained economic expansion.