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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

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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 . . .   

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Sources:
September Non-Manufacturing ISM Report On Business
Institute for Supply Management, 10:00 A.M. ET October 5, 2005
http://www.ism.ws/ISMReport/NMROB102005.cfm

Service-Sector Growth Cools, as Energy Prices Cast a Pall
AGNES T. CRANE
DOW JONES NEWSWIRES, October 5, 2005 10:57 a.m.
http://online.wsj.com/article/SB112851985481560577.html

Growth in the Services Sector Slowed in September
THE ASSOCIATED PRESS
NYT, October 5, 2005 Filed at 12:56 p.m. ET
http://www.nytimes.com/aponline/business/AP-Economy.html

U.S. Treasuries Rise After ISM Non-Manufacturing Index Declines
Oct. 5 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=10000103&sid=anpOq7Vc0f9k&refer=us

Wednesday, October 05, 2005 | 02:00 PM | Permalink | Comments (7) | TrackBack (1)
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Comments

"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.

Posted by: Andy | Oct 5, 2005 3:33:37 PM