As the September data begins to roll in, the Institute for Supply Management provides some good news on the service sector. Its Non-Manufacturing Index grew to 53.2% from 51.5% in August. That beat expectations of a smaller increase. Looking at its individual components, the sector's improvement over August is quite clear, but it remains relatively weak.

It's best to start with ISM's matrix, to which I added some color-coding:

ism nmi 2010-09.png

The coloring shown makes it pretty obvious that September came in quite a lot better than August. More components were improving faster and fewer were getting worse. Employment, inventories, and new export orders are particularly good news. They all switched from worsening to improving.

In fact export orders, especially, are probably the highlight of this report. The component had a huge 11.5% gain to the highest level in some time. As exports increase, firms will need to hire additional workers in the U.S. to satisfy global demand. Another important leading indicator, overall new orders, also increased during the month.

Of course, the news isn't all good. Supper deliveries are declining, which implies that firms are anticipating less demand going forward. The backlog of orders is also declining, which means existing staff is more than satisfying current demand. If that's the case, then little additional hiring is necessary.

So service industry health still appears mixed. The sector still has far to go before it's booming again. Still, September was a significant improvement over August, which provides some reason for optimism.

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