What little hope remaining for a September rate hike vanished this morning with the non-manufacturing ISM numbers.

New orders posted the lowest score since 2013 and new export orders plunged into contraction.

Economists missed the mark on this on by a mile. The Econoday Consensus reading was 55.0 in a range of 54.0 to 56.1. The posted number came in at 51.4.


What had been one of the most consistently positive indicators stumbled badly in August as the ISM non-manufacturing index fell more than 4 points to 51.4. This is the lowest rate of composite growth for this sample of the whole cycle, since February 2010.

And the composite score is no fluke with new orders falling nearly 9 points to 51.4 for their lowest score since December 2013. New export orders are a particular disappointment, also down a steep 9 points and in contraction at 46.5 which is also the lowest score since December 2013. And backlog orders are also in contraction, down 1-1/2 points to 49.5.

August’s lack of orders points to a weak spot ahead for other readings including business activity which has already slowed sharply, down 7-1/2 points to 51.8. Employment in the sample is still rising but only marginally, down 7 tenths to 50.7. Inventories are in contraction and prices paid are showing only modest pressure.

But there are positive spins to the report. New orders have been exceptionally strong in recent months including July’s 60.3 and the prior strength should help ISM’s sample bridge what hopefully will prove a one-month breakdown. Another positive is that most readings are still over 50 to indicate monthly growth which is underscored by what is still favorable breadth as 11 of 18 industries are still above 50. This report is not make-or-break for the economic outlook but it certainly will not raise pressure for a rate hike at this month’s FOMC meeting.

Recent History

The ISM non-manufacturing index has been signaling solid strength for the economy all year and another month of strength is expected for August where the consensus is calling for 55.0, in what would be little changed from July’s 55.5. New orders have been very strong in this report, at 60.3 in July for the best showing since October last year and which points to August strength for the sample’s production and employment as well.

Non-Manufacturing ISM


This is so choppy it’s hard to tell where the trend is, but the direction should be obvious.

Non-Manufacturing ISM Details

Index August July PP Change Direction Rate of Change Trend in Months
NMI® 51.4 55.5 -4.1 growing Slower 79
Business Activity / Production 51.8 59.3 -7.5 growing Slower 85
New Orders 51.4 60.3 -8.9 Growing Slower 85
Employment 50.7 51.4 -0.7 Growing Slower 3
Supplier Deliveries 51.5 51.0 0.5 Slowing Faster 8
Inventories 48.0 54.0 -6.0 Contracting From Growing 1
Prices 51.8 51.9 -0.1 Increasing Slower 5
Backlog of Orders 49.5 51.0 -1.5 Contracting From Growing 1
New Export Orders 46.5 55.5 -9.0 Contracting From Growing 1
Imports 50.5 53.0 -2.5 Growing Slower 7
Inventory Sentiment 64.0 63.0 1.0 Too High Faster 231

So much for that expected strength. Kiss the September rate hike goodbye. As I said on September 4, Eyes Shift to November and December.

September Cake

  1. The Fed won’t hike
  2. The Fed will yap about hiking
  3. Economists will shift their expectations of a hike to November

Lather, rinse, repeat.

Mike “Mish” Shedlock