Services Sector Reports "Subdued" to "Overheated"

Easing optimism in the outlook along with concern over the housing market pulled the services PMI to an 8-month low, ending September at 53.5 vs 52.9 for the mid-month flash and vs 54.8 in August. The report now describes the year-ahead outlook, weighed down by concerns over competition, as "subdued".

Yet current new orders regained their momentum in September with backlogs up for the first time since June. And hiring in the sample, in a positive indication for Friday's employment report, is the strongest right now in four years. The ongoing effects of tariffs helped feed a pick in input costs with selling prices, in a result that is certain to catch the attention of Federal Reserve policy makers, the strongest in the 9-year history of this report.

This is a mixed report with concern over housing and the dip in optimism offset by the rise in new orders and hiring.

...meanwhile...

Led by a record high in employment and a 14-year high in business activity, the Institute for Supply Management's non-manufacturing composite index easily beat Econoday's consensus range coming in at 61.6 for September. This is the strongest result yet for the composite which was established in 2008. The survey itself was established in 1997.

Boosted by expanding markets, business activity for the sample jumped 4.5 points to 65.2. This is one of four components of the composite with the others also consistent with acceleration: new orders up 1.2 points to 61.6, supplier deliveries lenghtening by 1.0 point to 57.0, and employment up 5.7 points to 62.4 in a reading which, like this morning's PMI services and ADP reports, points squarely at strength for Friday's employment report.

And the list goes on: backlog orders are up, export orders are up, inventories in the sample are building, and input costs are accelerating with construction labor, steel and titanium all in short supply. If there ever was an ISM non-manufacturing report that was consistent with overheating, this one is it.