U.S. ISM non-manufacturing index likely rebounded in September

The U.S. ISM non-manufacturing index is expected to have recovered in September after it dropped by around four points in August to 51.4, which was the lowest reading since February 2010. The August result was unexpected, particularly in light of the fact that the measure had accelerated in June and July after strong gains recorded in consumer spending.

Weakness was seen in both business activity and new orders that dropped to 51.8 and to 51.4 respectively. The underlying measure of the activity slowed in August; however, the drop is likely to have exaggerated the extent of easing in the services sector, said Societe Generale in a research note.

A similar deceleration earlier in 2016 was short-lived. The ISM nonmanufacturing index dropped almost three points to 52.9, with new orders and business activity leading the charge lower, noted Societe Generale. However, the next month both the components rebounded, retracing the earlier months’ fall, and the headline data rose nearly four points to 56.5.

There is little evidence that shows that services sector activity decelerated so dramatically in August, according to Societe Generale. The recent Beige Book noted that the rate of “demand for non-financial services rose slightly from the prior reporting period, and contacts generally expect moderate growth to continue in the sector”.

Moreover, the Dallas Fed noted that the service sector activity in the region rose in the month. Also, the Richmond Fed’s service sector survey showed that the revenues index in the region rose to +13 in September, while the respondents were optimistic regarding the prospects for the next six months.

“Thus, we expect to see a rebound in the ISM nonmanufacturing gauge in September to 54.2”, added Societe Generale.