• Service sector activity remains firm.

• Component activity is mixed.

• Strength in pricing power lessens.

The Composite Index of Services Activity from the Institute for Supply Management increased to 57.8 during September and recovered most of its August decline to 56.9. A shortfall to 56.3 had been expected in the Action Economics Forecast Survey.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading which was released last Thursday. The composite index rose to 57.5 from 56.8 in August. During the last 15 years, there has been a 52% correlation between the index level and the q/q change in real GDP. The composite is based on GDP shares.

Changes in the component series remained mixed last month. The index of business activity improved to 63.0 from 62.4 in August. It was the fourth consecutive reading above the break-even level of 50 after three months below it. A steady 37% of respondents (NSA) reported improved activity while a reduced eight percent reported deterioration. The new orders index rose to 61.5 after falling to 56.8 from a record high of 67.7 in July. The employment measure strengthened to 51.8, its highest level since February and up from low of 30.0 in April. A moderately reduced 17% of respondents reported more hiring while a greatly lessened 15% reported fewer jobs. Offsetting these gains, the supplier delivery series weakened to 54.9 (NSA), indicating the quickest delivery speeds since February.

The prices index backpedaled to 59.0 from 64.2 which had been the highest level since November 2018. A lessened 24% of respondents reported higher prices, while a steady six percent reported prices lower. The percentage reporting no change in prices rose moderately to 70%.

The export orders series fell moderately to 52.6 but remained up from the April low of 36.3. The imports index weakened to 46.6. The order backlogs index fell to 50.1, the lowest level since May. These series are not seasonally adjusted and are not included in the nonmanufacturing composite.

The ISM figures are available in Haver's USECON database, with additional detail in the SURVEYS database. The expectations figure from Action Economics is in the AS1REPNA database.