After a lackluster report on the Manufacturing sector for the month of October, the picture from the non-manufacturing sector was considerably brighter. While economists were expecting the headline reading to come in at a level of 56.5 (down from 56.9 last month), the actual reading came in at 59.1. This was the sixth-highest reading in the history of the series (1997), the second highest reading of the recovery, and the second largest beat relative to expectations in the last two years.
The second chart below shows the combined ISM reading for October weighted by both the manufacturing and non-manufacturing sectors’ weights in the overall economy. As shown in the chart, the combined ISM reading for October rebounded to 58.0 from last month’s low of 56.1. The importance of this chart should not be understated. While so much focus seems to get placed on the ISM Manufacturing report released on the first business day of the month, it is the non-manufacturing sector that has a much larger weight in the overall economy, so even with the ISM Manufacturing index barely holding on to the 50 level, the combined ISM is at 58.0.
The table below breaks down the ISM Non-Manufacturing report by each of its components. On a month/month basis, just two components (Supplier Deliveries and Inventory Sentiment) declined this month. On the upside, the biggest increases in the report were in New Orders and Business Activity. Compared to a year ago, we saw similar acceleration as Prices and Import Orders were the only categories down on a y/y basis. Finally, with the October employment report coming up Friday we would also note that the Employment component of this month’s report also hit its second highest level of the current cycle and the fourth highest reading since 1997.