Reports regarding nonfinancial services were mixed in September. Richmond noted slower overall activity, and St. Louis cited reduced demand for telecommunications, media, and education services. Demand for accounting and legal services was reported to have been unchanged in both Dallas and San Francisco. On the positive side, contacts in St. Louis reported that demand for business support services increased, and Boston reported strong business conditions for economic consulting firms involved with litigation work and advertising firms helping to market financial services. In addition, San Francisco noted continued growth in demand for technology services, Minneapolis noted an increase in activity in software and engineering, and Philadelphia cited some growth in logistics. Staffing at nonfinancial service-sector firms was reported to have been up slightly in Richmond, but growth slowed in Chicago and Philadelphia reported flat activity.Like the manufacturing report, this seems to be a "two steps forward, one step back" summation. Growth appeared to be reported in a small majority of districts, but the negative news weighed down the positive advances.
Let's take a look at the latest ISM index to corroborate some of the above data:
"The NMI registered 53 percent in September, 0.3 percentage point lower than the 53.3 percent registered in August, and indicating continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased 1.5 percentage points to 57.1 percent, reflecting growth for the 26th consecutive month. The New Orders Index increased by 3.7 percentage points to 56.5 percent. The Employment Index decreased 2.9 percentage points to 48.7 percent, indicating contraction in employment after 12 consecutive months of growth. The Prices Index decreased 2.3 percentage points to 61.9 percent, indicating prices increased at a slower rate in September when compared to August. According to the NMI, nine non-manufacturing industries reported growth in September. Respondents' comments reflect an uncertainty about future business conditions and the direction of the economy."Overall, the area is still just above the 50 line between growth and contraction. New orders are up, but employment is down.
The overall tone of the anecdotal information from the report is one of a weakening outlook. Lack of confidence on the part of both consumers and business is lowering current and future sentiment. No one has any faith that things are going to get better in the near future.
- "Weak consumer confidence and high gas prices are placing downward pressure on retail sales volume." (Information)
- "Business volume outlook and confidence across many market areas in North America appear to be softening." (Mining)
- "It appears everyone is waiting to see what happens next. No trust in the economy or the federal government to do what is needed." (Accommodation & Food Services)
- "The 2012 outlook is not optimistic; though we keep hoping for a rebound, we see little sign of an improved economy — nothing at least that will spur growth, investment or expansion. Improved investment performance in early 2011 caused us to begin several large capital projects, and although we have broken ground, we cannot help but question if our timing was right." (Educational Services)
- "Third and fourth quarters appear to be slowing down in order volumes. Uncertainty over U.S. and European economy is causing clients to hold off on new orders." (Professional, Scientific & Technical Services)
- "Negative forecast for housing market's future leads us to think we will be at current levels of business at best for the foreseeable future." (Wholesale Trade)
The composite index has been hovering above 50 for the last 6 months, indicating this area of the economy is still expanding.
The business activity index is still above 50, and has risen a bit over the last three months.
New orders were fluctuating over 50 for the last three months, but last month they took a solid pop higher. However, new orders did the same thing a few months back, only to fall back to lower levels.
The employment index has been dropping for the last three months and last month moved below 50 -- a sign of contraction.
The service sector appears to be in a slowdown phase, largely caused by lowered confidence and lack of economic visibility.