* The September 2013 Institute for Supply Management (ISM) non-manufacturing index fell to 54.4 from an almost eight-year high of 58.6 in August.
Market expectations had been for a modest decline to 57.0 in the month.
* The declines were broadly based among sub-components and led by the “business activity” measure falling to 55.1 from 62.2 in August.
The ISM non-manufacturing index fell by 4.2 points to 54.4 in September 2013 partially to retrace the increases during the previous two months that brought the index to an almost eight-year high of 58.6 in August from the recent low of 52.8 in June. Market expectations had been for a modest moderation in the measure in September to 57.0.
The overall decrease in September reflected a moderation in all four sub-components, led by the “business activity” measure falling to a three-month low of 55.1 from 62.2 in August. Sizable declines were also recorded in “employment” (which fell 4.3 points to a four-month low of 52.7) and “supplier delivery” (down to 50.0 from 54.5 in August) while “new orders” posted a smaller moderation in the month to 59.6 from 60.5 in the previous month.
While the sizable decline in the ISM non-manufacturing index, the month is disappointing (indeed, it represents the worst monthly falloff since November 2008), it comes as the measure was at its highest level in almost a decade in August, and the 54.4 level in September is still indicative of fairly solid growth in the sector that makes up approximately 90% of the US economy. Thus, the still-solid level of the September ISM non-manufacturing index, along with the unexpected increase in the complementary gauge for the manufacturing sector reported earlier this week, indicated that the underlying momentum in overall economic activity remained well established at the end of the third quarter of 2013. With that said, headwinds are rising from risk that a prolonged partial government shutdown and the impending threat of the government breaching the debt ceiling could weigh on business sentiment and constrain activity in the near term. Our assumption is that the shutdown will be relatively short and that the threat of default will be sufficient to force Congress to increase to the debt limit. As a result, we expect that any adverse effect from the machinations in Washington will be limited and that overall economic growth will come in at an above-potential rate to close out 2013.
RBC