IB Net Payout Yields Model

Stat of the Day: ISM Service Index Growing

After nearly 1 year of shrinking, the ISM Service Index finally shows signs of growing in September. The index reported at 50.9 for September beating estimates of a 50.0 report and 48.4 in August. For a market that has been weak due to supposedly concerning economic reports, this report is a reminder that the economy and recovery is clearly still in an uptrend. Too much emphasis has been placed on whether such and such report beat estimates and not enough on the trend. Just look at the monthly trend in the table at the bottom. The July report was slightly below the June report giving fears of a top in the recovery. Yet 2 months later and the report is much higher. If a similar pattern were too happen in Q4 then October would be around the mid 49s followed by say 52 and 54 reports. Would you sell stocks on the 'weak' October report or buy more knowing its still going higher?

This months report saw substantial growth in Business Activities, New Orders, and Backlog. Consistently with the recent past, Employment and Inventories were among the weakest. With lean inventories and higher productivity, corporate profits should be soaring. Companies will soon be forced to add employees as the backlog mounts and inventories must be replenished.

  • "The NMI (Non-Manufacturing Index) registered 50.9 percent in September, 2.5 percentage points higher than the 48.4 percent registered in August, indicating growth in the non-manufacturing sector after 11 consecutive months of contraction. The Non-Manufacturing Business Activity Index increased 3.8 percentage points to 55.1 percent. This is the second consecutive month this index has reflected growth since September 2008. The New Orders Index increased 4.3 percentage points to 54.2 percent, and the Employment Index increased 0.8 percentage point to 44.3 percent. The Prices Index decreased 14.3 percentage points to 48.8 percent in September, indicating a significant reversal and decrease in prices paid from August. According to the NMI, five non-manufacturing industries reported growth in September. Even with the overall month-over-month growth reflected in the report this month, respondents' comments vary by industry and remain mixed about business conditions and the overall economy.

Month NMI Month NMI
Sep 2009 50.9 Mar 2009 40.8
Aug 2009 48.4 Feb 2009 41.6
Jul 2009 46.4 Jan 2009 42.9
Jun 2009 47.0 Dec 2008 40.1
May 2009 44.0 Nov 2008 37.4
Apr 2009 43.7 Oct 2008 44.6
Average for 12 months — 44.0
High — 50.9
Low — 37.4


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