U.S. ISM non-manufacturing index rebounds in September, points towards reaccelerating economic activity

The U.S. ISM non-manufacturing index rebounded in September following a huge decline in August. The Institute for Supply Management’s non-manufacturing index recovered 5.7 points to 57.1, exceeding consensus expectations of a more muted rise to 53. The gains were widespread. Out of 10 ten subcomponents, nine rose in September.

The biggest rises were seen in the significant business activity that rose 8.5 points to 60.3 and in new orders index, which increased to 60. Both these components have recovered after declining sharply in August. Employment also performed well in the month, rising for the first time in three months to 57.2, the highest level since October 2015.

External indices also saw improvement, with export orders gaining 10 points to 56.5, whereas imports index rose 0.5 points to 51. Prices paid subcomponent was up by 2.2 points to 54 in September, implying that inflationary pressures are building. Out of 18 non-manufacturing industries surveyed, 14 recorded growth in September.

The September report is a positive report, with the ISM non-manufacturing index rebounding in September, implying that the sharp decline in August was temporary. Along with a similar recovery in the manufacturing index, this report assists in easing concerns regarding the U.S. economic health, indicating instead towards reaccelerating economic activity.

There is a possibility that uncertainty about the U.S. presidential elections might result in additional bout of volatility in business confidence; however, gains throughout forward-looking indicators imply that the positive momentum might be sustained in the months ahead, said TD Economics in a research note.

Moreover, the recent rebound in consumer sentiment, which is currently at the highest level of recovery, along with strong job growth augurs well for consumer spending. Improved performance in both services and manufacturing sectors should aid in moderating any concerns of economic slowdown on the Federal Open Market Committee. The September report, along with the sign of inflationary pressures and stable employment growth, should provide the U.S. Fed with additional confidence to hike rates later in 2016.