September’s Strong Service Sector Hits 21-Year High

September was good to the U.S. service sector, where activity reached a two-decade high as the economy begins the fourth quarter. The Institute for Supply Management’s (ISM) non-manufacturing activity index indicated more hiring was behind last month’s results that were last seen in August 1997.

Following Federal Reserve Chairman Jerome Powell’s remarks earlier this week that the economic outlook is “remarkably positive” as well as last week’s interest rate hike, Reuters reported economists anticipate yet another rate increase in December, the fourth hike in 2018. Economists said in the Oct. 3 article they anticipate ongoing growth; however, there are still concerns among companies in the service sector, including “capacity, logistics and the uncertainty with global trade.”

“Industries are bumping against capacity constraints in a robust economy and tightening labor market conditions,” Reuters states. “Companies are increasingly reporting difficulties finding qualified workers to meet demand, leading to delays in delivering goods and services.”

The ISM findings are complementary with NACM’s Credit Managers’ Index (CMI) September report, showing an overall boost in favorables such as sales and dollar collections. September typically has “quite a lot of activity in the service sector,” said NACM Economist Chris Kuehl, Ph.D., who noted that retail usually thrives the most, while construction dwindles in the colder months. According to CMI reports since 2015, the service sector experienced growth three out of five times during September.

“The movement is subtle to be sure, but at least it is heading in the right direction, and for two
months in a row,” Kuehl said in his comparison between the September 2018 and September 2017 CMI reports. “Dare we hope for a longer trend?”

—Andrew Michaels, editorial associate

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