ISM: Non-manufacturing index contracts after two months of growth
The non-manufacturing index dropped 5.8 percentage points, to 44.4%, after two months of slight growth.
By Allison Manning, Associate Editor -- Modern Materials Handling, 11/5/2008
October’s non-manufacturing index dropped 5.8 percentage points, to 44.4%, after two months of slight growth, according to the Institute for Supply Management’s Report on Business, released today.
A reading above 50% indicates the non-manufacturing sector economy is generally expanding; below 50 indicates the non-manufacturing sector is generally contracting.
The PMI registered 50.2% in September and 50.6% in October. Since January, the only other two months of growth have been April (52%) and May (51.7%).
“After two months of growth, you look at it and say where did the bottom fall out?” Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, told Modern.
Nieves said the indexes reflect what “everything else is telling us out there” regarding the economy. Because non-manufacturing consists of a diverse group of industries, it takes a while for it to show impact as a whole.
Like the manufacturing report released Monday, the non-manufacturing report included special questions on how the economy was affecting business. Of those that responded to the questions, 68.3% indicated that they or their suppliers have been affected by the turmoil, mostly related to credit issues. Forty-three percent indicated they’ve seen a decrease in the availability of credit, and 82.8% have reduced spending and/or hiring.
Other October indexes indicated business activity decreased 7.9 points to 44.2% and new orders decreased 6.8% to 44%. Prices dropped 16.6 points to 53.4, indicating a slower rate in price increases than September, and registering the largest one month decline since the index was first reported in 1997. It is the lowest level for the price index since July 2003 (51.4%).
Nieves said employment’s drop again, to 41.5%, is a result of a reduction in discretionary spending, propagating negativity in the markets.
A bright spot, he said, was the price drop, directly impacted by a reduction in fuel prices. Supplier deliveries are also faster and backlogged orders are down, but this has more to do with activity being down, which allows companies to expedite orders.
Only three non-manufacturing industries reported growth: other services, health care and social assistance, and utilities.
As for the rest of the year, Nieves said future growth hinges on the holiday season and how consumers and retail markets react. Historically, after Christmas, the sector slows down in the first part of the year, rebounding in February.
“I don’t know that we’ll see that uptick in February,” he said.
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