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The US services economy continues to hum along

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Assessing the state of non-manufacturing business in the US

The Institute of Supply Management (or ISM) Purchasing Managers’ 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 Managers’ Index.

The non-manufacturing ISM looks at a number of business indices—like new orders, production, employment, supplier deliveries, and inventory. It also examines customer inventories, backlogs, exports and imports, prices, 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)—like Boston Properties Inc. (BXP), Kilroy Realty Corporation (KRC), Vornado Realty Trust (VNO), SL Green Realty Corp. (SLG), and Highwoods Properties Inc. (HIW)—are particularly affected by the services sector.

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Services activity decelerated in September

The index showed that overall activity in the non-manufacturing sector increased for the 58th consecutive month. The rate of growth is accelerating. The overall index increased 2.2% in October—from 57.1% to 59.3%. The business activity index increased from 60% to 64.4%. The employment index decreased from 59.6% to 56.7%.

Expansion was reported in 16 of the industries. The best-performing sectors were construction, retail, and agriculture. Two industries—entertainment and utilities—reported declines.

It remains to be seen how the Affordable Care Act will affect corporate cost structures going forward.

Some key quotes from the survey

  • “Business is strong. Many new accounts want to be implemented before year-end so cost reductions can be included”—Professional, Scientific, & Technical Services.
  • “We are looking forward to a strong holiday season”—Retail Trade.
  • “Food cost continues to be a challenge due to cost of goods increases. Beef, produce and turkey markets remain high. Chicken, pork and eggs, although year-over-year are higher; prices have fallen from one month ago”—Accommodation & Food Services.
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