US ISM Service PMI

Yes, the ISM Service Sector PMI grew in September, and is above its year earlier level for the first time since March 2011. 

Service sector growth in the second quarter, outside of the household and utility sector component, was weak and perhaps this September strength is just an ephemeral rebound from that weakness. 

We also know that personal consumption expenditure was more or less stagnant over the 2nd quarter but has since rebounded in July and August.  

But we also know that as of August 2012 that consumers had cut their personal savings rates by 0.68% during July and August and that real personal disposable income had fallen by 0.37% from the end of June to the end of August.   

Demand may have grown in the service sector, part of this may have been a natural rebound to earlier weakness, but based on current data, it appears to have been financed by reduced levels of saving.

There are also some interesting aspects of the ISM services report that raise questions:

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Number 1 – new orders data which showed a very strong improvement shows those reporting lower orders close to the lower historical bound and those reporting no change at an historical high.   Those reporting higher orders remain fixed towards the lower end of the historical bound.

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Number 2 – those reporting lower employment has increased towards the the upper bound and those reporting no change has moved towards the lower bound at the same time as those reporting higher employment has fallen.

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Number 3 – it is not unusual for the services export index to deviate from the business activity index, but a decline in exports at a time when imports have recovered from earlier lows and global demand concerns increase, may not be positive.

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