Steady Services Activity

The U.S. services sector has steadily expanded this year, even as trade fears drag down manufacturing.

The Institute for Supply Management’s (ISM) non-manufacturing (services) Purchasing Managers’ Index (PMI) climbed to 54.7 in October, its 117th straight month in expansionary territory (above 50). As shown in the LPL Chart of the Day, in recent months ISM’s manufacturing and services PMIs have diverged the most since 2015.


While the growing difference between manufacturing and services data is curious, we see it as a reflection of global weakness in the midst of moderating domestic growth. U.S. manufacturing has been susceptible to a downturn in global factory production as international trade has broken down and demand has dried up.

“We tend to write more about gauges of manufacturing health, as manufacturing is a bellwether for the economy and corporate profits,” said LPL Financial Senior Market Strategist Ryan Detrick. “Services data, however, shows that consumers are still willing to spend amid a tenuous global environment. That dynamic alone could power the expansion forward.”

Manufacturing comprises about 12% of total gross domestic product, while services sectors (such as food services, real estate, and entertainment) account for a much larger swath of output.

There are still signs of trade-related impacts in services, though. Respondents in the ISM’s October survey noted concerns about trade and geopolitical issues, as well as a shortage of labor resources. ISM’s services gauge hasn’t been completely immune from global weakness, either—it has dropped noticeably from an economic cycle peak reached September 2018.

Still, we’d expect to see more deterioration in services activity if a recession were imminent. ISM’s steady low-50 readings show us the U.S. economy is slowing, but it’s still growing at a moderate pace.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (Member FINRA/SIPC).  Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL is not an affiliate of and makes no representation with respect to such entity.

If your advisor is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit


For Public Use | Tracking #1-913593