U.S. ISM non-manufacturing index drops significantly in September

The U.S. Institute for Supply Management’s non-manufacturing index recorded a considerable fall in September, dropping 3.8 points to 52.6 in September from August’s 56.4. This is the lowest level since August 2016. The headline print was significantly below consensus expectations of a smaller fall to 55.

Out of the four key subcomponents, three dropped in the month. Looking into details, both business activity and new orders recorded large declines of 6.3 points and 6.6 points, respectively, partly reversing outsized gains in the prior month. The employment subcomponent also fell 2.7 points to 50.4, narrowly avoiding falling into contractionary territory. This marks the lowest level since February 2014. The supplier deliveries index was the only key subcomponent to post a rise in September.

The backlog orders rose 5 points to 54 from 49. Price pressures deepened for the second straight month in August, with the prices paid subcomponents rising to 60. Traded-related components came in mixed. Import orders dropped 1.5 points to 49, dropping into contractionary territory, meanwhile, export orders strengthened by 1.5 points to 52. The growth was also less widespread than before, with just 13 out of 18 industries reporting growth in September.

“All in all, while the U.S. economy continues to hum along, today's data suggests that the slowdown is broadening, and will likely necessitate at least one more rate cut by the Fed. Tomorrow's employment data for September will be very closely watched to see how hiring held up in September in the face of broadening economic uncertainty”, said TD Economics in a research report.