US Services Industry Slowed… And Accelerated… In September (You Decide)

After a mixed picture (though uniformly disappointing) in Manufacturing surveys, analysts expected US Services surveys to show further deterioration from their post-COVID rebound peak.

• Markit US Services 54.6 vs 54.6 flash vs 54.6 exp vs 55.0 prior

• ISM US Service 57.8 vs 56.2 exp vs 56.9 prior

So Markit fell and ISM rose in September – choose which one you believe!

Source: Bloomberg

Under the hood of ISM Services:

• Business activity rose to 63.0 vs 62.4 prior month

• New orders rose to 61.5 vs 56.8

• Employment rose to 51.8 vs 47.9; the highest since February

• Supplier deliveries fell to 54.9 vs 60.5; the lowest level since February

• Inventory change rose to 48.8 vs 45.8

• Prices paid fell to 59.0 vs 64.2

• Backlog of orders fell to 50.1 vs 56.6

• New export orders fell to 52.6 vs 55.8

• Imports fell to 46.6 vs 50.8

• Inventory sentiment rose to 55.4 vs 52.5

ISM respondents were mostly optimistic:

“Business has been fairly stable over the summer; however, there is still a great deal of uncertainty as we move into fall and winter [and] how our sales volume will be.” (Agriculture, Forestry, Fishing & Hunting)

“Our industry is facing a bleak outlook, as the Hollywood studios have pulled back almost all of their content from October and November and moved it into next year. Coupled with the state health mandates restricting our attendance, we expect to operate at a loss in 2020 and 2021.” (Arts, Entertainment & Recreation)

“Work orders are improving rapidly. Lack of available labor is having a significant impact on our ability to fulfill orders.” (Construction)

“Insurance industry will experience some impact from weather- and protest-related property damage and business interruption.” (Finance & Insurance)

Commenting on the latest survey results, Chris Williamson, Chief Business Economist at IHS Markit, said:

“The U.S. economy continued to rebound in September from the deep contraction seen at the height of the Covid-19 pandemic, with business activity rising across both manufacturing and services to round off the strongest quarter since early-2019.

“Covid-19 worries and social distancing continued to impact many businesses, however, especially in consumer-facing sectors, where demand for services fell once again. However, business and financial services, healthcare and housing sectors all fared well as the economy continued to revive, and exports of services also picked up as other countries continued to open up their economies.

“Encouragingly, new orders for services grew at an increased rate in September, putting additional pressure on operating capacity and fuelling another robust rise in employment. A further rise in backlogs of work bodes well for robust jobs growth to be sustained into October.

However, the slowdown in the Composite Index suggests this may be as good as it gets for US economic growth’s rebound…

“Sentiment on prospects for the coming year darkened significantly, however, linked to growing worries about virus numbers, uncertainty regarding the presidential election and fears that the economy is susceptible to weakening unless more support measures are put in place soon.”