- by New Deal democrat
[I was busy doing my civic duty the past few days. I’ll have something to say about the election at some point later, but not now.]
Yesterday the ISM services report came in very strong for the second month in a row, with the headline at 56.0 and the more leading new orders subindex at 57.4:
This is important, because services are roughly 3/4’s of the economy.
To reiterate, because manufacturing is of diminishing importance to the economy, and was in deep contraction both in 2015-16 and again in 2022 without any recession occurring, I now use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively, for forecasting purposes.
Here are the last six months, including September, of both the manufacturing (left column) and non-manufacturing index (center column) numbers, and their monthly weighted average (right) :
MAY 48.9. 53.8. 52.5
JUN 48.5. 48.8. 48.7
JUL. 46.8. 51.4. 50.2
AUG. 47.2. 51.5 50.4
SEP. 47.2. 54.9 53.0
OCT. 46.5. 56.0 53.6
And here is the same data for the new orders components:
MAY 45.4. 54.1. 51.9
JUN. 49.3 47.3. 47.8
JUL. 47.4. 52.4. 51.2
AUG. 44.6. 53.0. 50.9
SEP. 46.1. 59.4. 56.1
OCT. 47.1. 57.4. 54.8
The three month economically weighted headline number is 52.4, and for the more leading new orders index is 54.0.
The gist of this is pretty clear: while goods production is in contraction, services provision is expanding strongly. The expansion is in good shape for the immediate future. If there is a caution here, it is that as expansions age, goods production tends to wane while services continue to grow. This suggests pretty strongly that, even if no recession is close at hand, the expansion is likely in its latter half.