ISM Non-Manufacturing Index Slows Less Than Consensus

October's ISM non-manufacturing index was expected to slow from September's record and it did, but at 60.3 the slowing is a bit less than Econoday's 59.1 consensus. New orders, like they are in the services PMI released earlier this morning, are the highlight of October's report, holding at an enormously strong 61.6 with export orders also holding unchanged, at 61.0.

Capacity strains on the sample are not deepening as the build in backlog orders slowed by 5.0 points to a manageable 53.5. The sample is successfully building inventories despite a noticeable but not severe lengthening in delivery times. Hiring is very strong but, at 59.7, is 2.7 points below September's outsized 62.4. Input prices are elevated but at 61.7 are down 2.5 points.

The strength in export orders highlights how strong foreign demand is for U.S. services, such as financial services and technical and managerial services. Yet concerns over tariffs particularly with China are a constant refrain of the sample's commentary amid concerns that related costs may soon begin to escalate.

Tariffs aside, ISM's non-manufacturing sample has been having an extraordinarily good year and, based on the strength of new orders in October's report, looks to end 2018 at a robust pace. These results in combination with this morning's service PMI hint at a very fast fourth-quarter start for the bulk of the U.S. economy.