U.S. September ISM Non-Manufacturing PMI Hits One-and-a-Half-Year High, Signaling Strong Economic Growth
In September, the U.S. service sector activity reached its highest level in a year and a half, with the non-manufacturing Purchasing Managers' Index (PMI) rising to 54.9, indicating steady economic growth. Strong growth in new orders drove the PMI higher, indicating expansion in the service sector. Despite facing higher input prices, the trend of slowing inflation may not change. The job market has slowed down, especially in the leisure and hospitality industry, with job vacancies increasing. The Atlanta Fed expects third-quarter GDP to grow at an annualized rate of 2.5%
According to the latest information from the Intelligent Finance and Economics APP, in September, the US service sector activity surged to the highest level in a year and a half, mainly driven by strong growth in new orders, further proving that the US economy remains robust in the third quarter.
The Institute for Supply Management (ISM) stated on Thursday that the non-manufacturing Purchasing Managers' Index (PMI) for September accelerated to 54.9, reaching the highest level since February 2023, when the index was at 51.5 in August.
A PMI reading above 50 indicates expansion in the service sector, which accounts for more than two-thirds of the US economy. ISM believes that a PMI reading consistently above 49 typically signifies overall economic expansion. Economists surveyed by foreign media had previously expected the service sector PMI to rise to 51.7.
This survey result is consistent with the relatively optimistic consumer spending data in August and a smaller trade deficit in goods, indicating that the economy has maintained the growth momentum from the second quarter into the third quarter.
The Atlanta Federal Reserve estimates that the US Gross Domestic Product (GDP) grew at an annualized rate of 2.5% from July to September. The economic growth rate in the second quarter was 3.0%. Annual benchmark revision data released by the US government last week showed a stronger economic performance over the past three years than previously reported.
The new orders index in the ISM survey jumped from 53.0 in August to 59.4, also reaching the highest level since February 2023.
With rising demand, businesses are facing higher input prices. However, this may not alter the trajectory of slowing inflation, as commodity prices are still declining. In August, the inflation rate hit the lowest level in three and a half years.
The ISM's service sector input price index rose from 57.3 in August to 59.4, marking the highest level in eight months. Meanwhile, the service sector employment index decreased from 50.2 in August to 48.1, indicating a slowdown in the labor market.
The slowdown in employment growth is largely due to a cooling demand after significant rate hikes in 2022 and 2023. However, in certain industries, especially in leisure and hospitality, labor shortages still exist. In August, job vacancies in this industry increased by 80,000, while the number of hires decreased.
Employment growth is expected to remain stable in September. Surveys by foreign media predict an increase of 140,000 non-farm jobs last month, compared to an increase of 142,000 in August. Over the past year, the average monthly employment growth has been 202,000.
The unemployment rate is expected to remain unchanged at 4.2%. Since April 2023, the unemployment rate has risen from 3.4% to this level.
The Federal Reserve last month significantly lowered the benchmark interest rate by 50 basis points to a range of 4.75%-5.00%. This is the first time since 2020 that borrowing costs have been reduced, acknowledging the increasing risks faced by the labor market. The market expects the Fed to cut rates again in November and December