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September ISM Services Activity to Slow

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September’s ISM non-manufacturing PMI report is due to come out today.

Economists forecast that non-manufacturing or services activity in the United States will decline during the reporting month.

The ISM services sector has also been slowing over the past few months.

For September, the consensus view is that non-manufacturing activity will decline to 55.8. In August, non-manufacturing PMI registered a print of 56.4. The index briefly spiked to 56.9 in May following which there has been a steady decline ever since.

ISM Non-Manufacturing PMI
ISM Non-Manufacturing PMI

The services sector contributes quite a bit to the US gross domestic product. The manufacturing sector has also been weakening quite a bit. Thus, a decline in both manufacturing and non-manufacturing will potentially signal a possible downturn in the near term.

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The services sector in the US accelerated in August. This saw an increase in private hiring which suggested that the economic services sector activity managed to buck the trade war uncertainty.

Investors will be closely watching the non-manufacturing PMI report today. The data will give us a glimpse into how the services sector has contributed to US GDP growth during the third quarter of the year.

There is no doubt that the expectations are for lower GDP growth during the three months ending September. A weaker ISM print will, however, confirm this view.

Flash Services PMI Fare Better in September: Markit

IHS Markit’s flash services PMI for September showed that business activity was muted. However, there was evidence of some modest increase in business activity. The flash US composite output index was at 51.0 in August, marking a two-month high.

The business activity index rose to 50.9 compared to 50.7 in August.

The flash services PMI output showed a modest increase in activity.

In August, Markit’s measure of the services sector fell to a three and a half year low. Business activity was, however, muted. Firms reported that the demand continued to remain sluggish during the month.

The rate of private-sector business growth was also one of the weakest since October 2009. The overall data, despite rising in September, reflects broad weakness. Sharper declines in work logs were noted.

Some companies also said that they had to cut back on hiring due to subdued demand. Payrolls in the private services sector were seen falling for the first time since January 2010. However, having said the above, the flash services PMI are always due for corrections.

As a result, there is a good chance that the actual reading could be somewhat better than expected.

From the ISM’s perspective, a slowdown in September will potentially see a slower average pace of growth. In the second quarter, the average of the ISM non-manufacturing PMI was 55.8. Even if the non-manufacturing PMI matches the estimates, it would still fall below the second-quarter average.

Trade Uncertainty to Weigh on Business

The current economic landscape isn’t the best. The global markets are already moving into the late growth cycle. While a slowdown in such a period is expected, this is further hastened by the trade war uncertainty.

While the trade war was relatively quiet during September, the expected declines are a result of the previous decisions made by the Trump administration.

With many expecting growth to slow, it will not be surprising to see a weaker headline print on the ISM non-manufacturing PMI. The next question will be whether investors will be expecting to see another rate cut from the Fed.

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