The services sector continued to expand in September, the Institute for Supply Management reports. Its Non-Manufacturing Index increased to 55.1 last month, up from 53.7 in August. That’s a sign that the services sector overall grew at a faster pace in September, ISM advises. It’s also another clue for thinking that the U.S. economy continued growing last month. Indeed, with today’s ADP Employment Report and Monday’s release of the September update of the ISM Manufacturing Index, we now have three indicators that collectively suggest that last month wasn’t the start of a new recession.
It’s still early for making high-probability assessments of how the full data set for September will fare. Based on the published numbers so far, however, it’s still reasonable to expect that slow growth is the path of least resistance.
The September ISM Services Index rose to its highest level since March, as did its new orders component. Employment in the services sector weakened slightly, according to ISM, but the index for jobs in this corner remained above 50 last month. Readings above 50 for the ISM indexes equate with growth; below-50 readings indicate contraction.
Stepping back and looking at the ISM services index in historical context in recent years clearly suggests that this indicator remains comfortably above levels associated with recessions.
“Business activity in the services, construction, and government sectors of the economy accelerated in September but these sectors are growing at only a moderate pace,” Steven Wood, president and economist at Insight Economics, advised in a note to clients via Bloomberg. “Growth in the third quarter was slightly better than it was in the second quarter.”
Another analysts says that “it looks more like things are heading in the right direction. It is this new reality–we don’t have robust growth, we just have very moderate growth,” William Larkin, fixed income portfolio manager at Cabot Money Management, tells Reuters.
That’s more or less what a broad reading of the economic numbers have been telling us for some time, as last week’s update of The Capital Spectator Economic Trend Index reaffirmed. That hasn’t stopped some analysts from cherry-picking a few data points and trying to exaggerate the dark side. But the incoming data so far for September, combined with what we know of the last several months, implies that slow growth rolls on. Yes, it’s vulnerable to any number of potential trouble spots, including the possibility of a self-inflicted recession if the politicians allow the country to drive over the fiscal cliff. But if we stick with what we know today, it’s still premature to insist that all’s lost.
When this train comes to a complete stop, or reverses direction, the numbers will tell us so, and you’ll read about it here. Meantime, arguing that a recession has already started remains a forecast, and one with minimal support from the numbers.
Tomorrow, as always, is another day.