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Non Manufacturing ISM: Is the Pig Through the Python?

Posted By Barry Ritholtz On October 5, 2005 @ 2:00 pm In Economy | Comments Disabled

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 [1], 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

Briefingnon_mfg_ism_napm [2]

Chart courtesy of On-Line WSJ [3]

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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 [4] over one year ago [5])? 

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 [6], it will be too late . . .   

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Sources:
September Non-Manufacturing ISM Report On Business [7]
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 [8]
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 [9]
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 [10]
Oct. 5 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=10000103&sid=anpOq7Vc0f9k&refer=us


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/10/non-manufacturing-ism-is-the-pig-through-the-python/

URLs in this post:

[1] Double Squeeze: Between a Rock and a Hard Place: http://www.ritholtz.com/blog http://bigpicture.typepad.com/comments/2004/09/double_squeeze_.html

[2] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/briefingnon_mfg_ism_napm.gif

[3] On-Line WSJ: http://online.wsj.com/documents/bcom-fuecnapmserv.htm

[4] suggested was happening: http://bigpicture.typepad.com/comments/2004/06/uncle_sam_helps.html

[5] one year ago: http://bigpicture.typepad.com/comments/2004/09/double_squeeze_.html

[6] Fog of Katrina: http://bigpicture.typepad.com/comments/2005/09/the_fog_of_katr.html

[7] September Non-Manufacturing ISM Report On Business: http://www.ism.ws/ISMReport/NMROB102005.cfm

[8] Service-Sector Growth Cools, as Energy Prices Cast a Pall: http://online.wsj.com/article/SB112851985481560577.html

[9] Growth in the Services Sector Slowed in September: http://www.nytimes.com/aponline/business/AP-Economy.html

[10] U.S. Treasuries Rise After ISM Non-Manufacturing Index Declines: http://www.bloomberg.com/apps/news?pid=10000103&sid=anpOq7Vc0f9k&refer=us

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