Non Manufacturing ISM: Is the Pig Through the Python?

Today’s Non Manufacturing ISM data dropped to the lowest level in 2 years. At the same time, the prices paid index spiked to the highest levels ever — or at least, since ISM began surveying non-mfr businesses in July 1997.

This suggests a considerable slowdown in the Service sector, which itself accounts for ~90% of the US economy. Further, as we noted last year in Double Squeeze: Between a Rock and a Hard Place, firms  are finding it increasingly difficult to pass along price increases — setting us up for a margin and earnings squeeze.

Ralph Kauffman, chair of the ISM committee that conducts the survey said: "The drop in the overall business activity index was similar to the drop after Sept. 11, 2001 — the previous largest drop — and we got an immediate bounce back after that."  Note: these responses were collected before Hurricane Rita struck Texas and Louisiana.

In point of fact, the drop (11.7 in September) was (surprisingly) even larger than the decline (9.2) following 9/11.

click for larger chart


Chart courtesy of On-Line WSJ


So here we sit, a mere 2 years after a trillion dollars worth of tax cuts stimulated the stock market, and one has to wonder whether their affects are attentuating (as we suggested was happening over one year ago)? 

Or, will the most recent weakness get blamed on Katrina/Rita ?

While I suspect its the former, don’t be too surprised if and when Katrina gets all the blame. Of course, by the time anyone figures out its merely the Fog of Katrina, it will be too late . . .   


September Non-Manufacturing ISM Report On Business
Institute for Supply Management, 10:00 A.M. ET October 5, 2005

Service-Sector Growth Cools, as Energy Prices Cast a Pall
DOW JONES NEWSWIRES, October 5, 2005 10:57 a.m.

Growth in the Services Sector Slowed in September
NYT, October 5, 2005 Filed at 12:56 p.m. ET

U.S. Treasuries Rise After ISM Non-Manufacturing Index Declines
Oct. 5 (Bloomberg)

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. Andy commented on Oct 5

    “setting us up for a margin and earnings squeeze”

    It’s already started. Layoffs are up in September. That’s how companies handle this kind of squeeze.

    And who told you that tax cuts, especially ones targetted primarily at the upper class, provide long-term stimulation? Must have been a theoretical economist. Or a politician trying to buy your vote.

  2. erikpupo commented on Oct 5


    Does the Fed not realize though, that without a correpsonding reduction in credit, higher rates are simply not going to deter demand enough to slow inflationary pressures?

    I think their conundrum is they think that higher rates will discourage demand and bring on a lower rate of inflation as supply comes into balance. It seems to be happening but much slower than normal due to just the overwhelming force of available credit.

    The problem is people seem willing to take on credit at higher and higher rates to support their lifestyle.

  3. Andy commented on Oct 5

    “The problem is people seem willing to take on credit at higher and higher rates to support their lifestyle.”

    Reading the data, though, you’d likely noticed that the average person’s wage hasn’t kept up with inflation since 2001. Only those at the top of the food chain have gotten any appreciable raise.

    Some people are indeed “willing” to spend more than they make. Others are just plain running out of options.

  4. Algernon commented on Oct 5

    Y’all seem to be implying that our economy would be better off if that “trillion dollars” of tax cut were being spent by the politicians in Washington–& spent it would be–rather than the people who earned the money you seem to want taxed away. Have I drawn the wrong inference?

  5. Idaho_Spud commented on Oct 5

    Yes, you’ve drawn the wrong inference. That trillion dollars (and then some) was spent anyway! Deficit spending is inflationary and (briefly and unsustainably) stimulative.

    Printing money out of thin air to attempt to pay for what the government hasn’t taken in in revenue from wealthy people is also inflationary. In short, it’s very very bad news for those who are lower on the food chain.

  6. At These Levels commented on Oct 5

    “Non Manufacturing ISM: Is the Pig Through the Python?”

    Non Manufacturing ISM: Is the Pig Through the Python?

  7. spencer commented on Oct 6

    Alegrnon — the problem with your analysis is that they spent it anyway. The tax cuts were accompanied by an acceleration in spending. So Bush borrowed and spent rather then taxed and spent. But these loans will have to be repaid someday.

    We are now 15 quarters from the economic bottom.
    Real GDP is up 12% from the bottom vs an average gain of 18% in real gdp in the previous post WW II recoveries. So growth has only been two-thirds of normal — that implies the Bush tax cuts may actually have had a negative impact.

Read this next.

Posted Under