Today’s Gray Swan – ISM Non-Manufacturing Index

The Institute for Supply Management (ISM) released the results of their survey of purchasing managers at non-manufacturing firms. The result was a bit higher than expected with the ISM Non-Manufacturing Index coming in at 58.7. According to Bloomberg the consensus expectation was for 56.5 and last month’s reading was 56.0. The new number shows an acceleration in business activity for non-manufacturing industries in the US.  The US economy is more reliant on non-manufacturing than manufacturing oriented industries so this reading applies to the majority of US business activity.

For those unfamiliar with how this index works, a reading above 50.0 means business activity is expanding, a reading below indicates contracting business activity. The chart below shows the last ten years for this ISM index, note we are bumping up against the high end of the historical range.

ISM Index

Data Source: Bloomberg

This matters because we will not see higher rates out of the Fed or the continuation of activity that has kept interest rates low if the Fed becomes concerned about inflation.   If the ISM Non-Manufacturing Index continues to maintain high levels or trends higher inflationary pressures are sure to follow.