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Must-know: Services index pulls back yet employment still growing

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Assessing the state of non-manufacturing business in the U.S.

The Institute of Supply Management (or ISM) purchasing manager’s index (or PMI) is similar to other regional PMI indices, except that it covers the entire country. It’s the sister index to the ISM Manufacturing Purchasing Manager’s Index.

The non-manufacturing ISM looks at a number of business indices, like new orders, production, employment, supplier deliveries, inventory, customer inventories, prices, backlog, exports and imports, and capital expenditures. A reading over 50 means the sector in question is generally expanding.

ISM non-manf

Office real estate investment trusts (or REITs), such as Boston Properties, Inc (BXP), Kilroy Realty Corp (KRC), Vornado Realty Trust (VNO), SL Green Realty Corp (SLG), and Highwoods Properties Inc (HIW), are particularly affected by the services sector.

Services activity decelerated in September

The index showed that overall activity in the non-manufacturing sector increased for the 56th consecutive month, but that the rate of growth is decelerating. The overall index fell 1% to 58.6% in September from 59.6% in August. The business activity index decreased to 62.9% while the employment index increased from 57.1% to 58.5%.

Expansion was reported in 12 of the industries. The best-performing sectors were construction, retail, and utilities. Five industries reported declines.

It remains to be seen how Obamacare will affect corporate cost structures going forward.

Some key quotes from the survey

  • “In the building industry there continues to be a lot of remodeling and smaller additions with replacement facilities and new buildings lagging. Many companies would like to build new, but are still concerned about making the large investment at this time.” (Construction)
  • “Orders continue to be steady and forecasts are strong for the remainder of the year. There does not appear to be significant growth, but a steady strong business level.” (Professional, Scientific & Technical Services)
  • “Positive sales growth for the quarter is encouraging. Continue to see pricing pressure in most sectors which directly impact profit.” (Retail Trade)

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