ISM: Non-manufacturing sector expanded in September, outlook remains murky

Though the Institute for Supply Management's September report on the U.S. manufacturing sector was surprisingly upbeat, the organization's assessment of businesses in the nation's non-manufacturing sector suggested U.S. economic activity is faltering.

The ISM's September 2011 Non-Manufacturing Report on Business concluded economic activity within the sphere expanded in September, logging its 22nd consecutive month of increases. However, the ISM's Non-Manufacturing Index (NMI) declined from levels registered in August, indicating companies could be contracting.

Moreover, the ISM's Employment Index declined precipitously from August to September, falling by 2.9 percentage points to 48.7 percent. That the index dropped underscores the relative volatility in employment among services firms in the U.S., experts said.

"The NMI registered 53 percent in September, 0.3 percentage point lower than the 53.3 percent registered in August, and indicating continued growth at a slightly slower rate in the non-manufacturing sector," ISM chair Anthony Nieves said in a statement. "The Employment Index decreased 2.9 percentage points to 48.7 percent, indicating contraction in employment after 12 consecutive months of growth."

Nevertheless, there were bright spots in the group's report. The ISM Business Activity Index climbed to 57.1 percent in September, and its New Orders Index jumped to 56.5 percent as well. The former increased for the 26th consecutive month, as firms reported increased sales bolstered their monthly results.

ISM data also illustrated inflationary pressures are lessening as the economy slows. Company executives surveyed said they are most concerned about the future business conditions in the U.S. economy.

"The Prices Index decreased 2.3 percentage points to 61.9 percent, indicating prices increased at a slower rate in September when compared to August. According to the NMI, nine non-manufacturing industries reported growth in September. Respondents' comments reflect an uncertainty about future business conditions and the direction of the economy," Nieves affirmed.

Weak consumer confidence is still hurting business activity, a majority of executives asserted, and demand appears to be softening among many core industries. Lingering concerns regarding the European sovereign-debt crisis and the health of the U.S. economy are continuing to weigh on consumers and businesses, and unless confidence is restored, some experts fear the U.S. could be headed toward another recession.