Home > Strong ISM Non-Manufacturing Sends Stocks Higher

Strong ISM Non-Manufacturing Sends Stocks Higher

October 6, 2020 By Mircea Vasiu

The stock market in the United States continues its strong performance this week. Despite the uncertainty created by the POTUS infection with the COVID-19, the market seems to have found a way to live with the virus. The news affected little the price action, and all the lost ground on Friday was quickly recovered at the start of the new trading week. 

The ISM Non-Manufacturing release is one of the causes for the strong bounce seen yesterday. It came out at 57.8, much better than the 56.3 expected, reflecting a solid comeback for the most important sector in the United States – the services sector.

What the ISM Non-Manufacturing Release in September Tells Us

To start with, the ISM Non-Manufacturing reached 57.8 from 56.9 a month earlier. Not all the sub-components expanded in September, but the most relevant ones did.

For example, business activity/production continues to expand at the highest pace when compared with other sub-sectors. It reached 63 in September after 62.4 a month earlier. It is always useful to keep in mind that any value above the 50 level means expansion, while below means contraction.

Another sub-sector showing remarkable growth is the new orders one. It reached 61.5 from 56.8, a staggering development as this marks the fourth consecutive month of growth.

However every positive news mentioned so far pales in comparison to the employment component. For the first time in a long time, the employment component of the ISM Non-Manufacturing shows growing conditions. Last month the employment component still contracted, coming out at 47.9, well below the 50 level. However, in September it crossed into the expansion territory, at 51.8.

To put things into perspective, perhaps it is worth looking at how the ISM performed before and at the height of the coronavirus crisis. Before the pandemic reached the United States, the ISM Non-Manufacturing grew for 122 consecutive months. Yes, for more than a decade, the services sector in the United States continued to expand.

That came at an abrupt end in April and May this year. However, after two months of contraction, we are now in the fourth consecutive month of the sector’s expansion.

Naturally, there is still a long way to go. However, it feels like the sector builds a solid base for further expansion, especially considering the fact that the Fed intends to keep the monetary policy extremely loose for years to come.