Economic activity in the non-manufacturing sector, one of the more closely watched gauges of the services market, climbed further in September, recording a level of 53.2, more than three percentage points above the theoretical dividing line between an expanding services sector and one that is declining. This measure improved from August's reading of 51.5, and surpassed the expected survey result of 52.0. The better-than-expected result was greeted warmly by Wall Street, with the stock market building upon its early advance during the session.
The report on non-manufacturing activity was issued by the Institute for Supply Management, a private research organization based in Tempe, Arizona. The ISM also tracks manufacturing activity. This latter survey was released on October 1st, and recorded an increase in this area, as well. Note that for the ISM's non-manufacturing survey, a result of between 42.0 and 50.0 suggests a contracting services sector within the parameters of an expanding economy. A reading below 42.0 in consistent with recessionary conditions, overall. We had been well below that threshold during the depths of the 2007-2009 business downturn.
The non-manufacturing survey results indicated that there was continued growth in this sector, and at a modestly faster rate in September than in August. In addition to the composite reading of 53.2, we also saw stepped-up increases in new orders and employment. However, the rate of increase in pricing decreased slightly from the prior month, while the non-manufacturing business activity index grew more slowly, coming in at 52.8 down from the prior month's 54.4. However, this corner of the non-manufacturing sector has now experienced growth for 10 straight months.
Overall, it was a decent report, with improvement surpassing expectations. Nevertheless, among the respondents interviewed, there was a range of opinions expressed. For example, in the construction field, there was a sense that the general state of the business had not changed in the last three months. The market was still mostly soft for new sales, due to restrictive financing requirements.
In the finance and insurance areas, some of those commenting suggested that business had flattened out from the month before. The story in professional, scientific, and technical services was largely the same. However, in accommodations and food services, business was reported as stable to slightly better. Wholesale trade, meanwhile, was more upbeat, suggesting that this sector was seeing improving confidence and a better feeling about the economy.
Overall, such comments would seem consistent with the aggregate reading in this survey. Things are definitely getting better in the services area, as they are for the economy at large, but the gains are incremental, at best, and reflective of an economy that is growing in fits and starts, rather than in a straight line. Such data, though, would suggest that earlier worries about a double-dip recession may have been somewhat exaggerated, although we may not fully be out of the woods along that front just yet.