ISM Non-Manufacturing Index up for 15th straight month in February

The ISM’s index for measuring the sector’s overall health—known at the NMI—was 59.7 in January, a 2.3 percent increase from December. Like the ISM’s Manufacturing Report on Business, a reading above 50 represents growth.

By ·

The Institute for Supply Management reported today that its Non-Manufacturing Report on Business showed positive growth for the 15th straight month.

The ISM’s index for measuring the sector’s overall health—known at the NMI—was 59.7 in January, a 2.3 percent increase from December. Like the ISM’s Manufacturing Report on Business, a reading above 50 represents growth.

Three of the NMI’s four core metrics were up in January. The Business Activity/Production Index at 66.9 was up 2.3 percentage points. New Orders at 64.4 were down 0.5 percentage points, and Employment at 55.6 was up 1.1 percentage points.

“In the past, we have seen some head fakes with this data, when it comes to assessing the economy, and I am always a little bit cautious,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. It was good to see another strong month, and it appears that the recovery is sustainable, with slow, incremental growth, but there is still cautious optimism.”

With the Business Activity/Production Index and New Orders both in the mid-60’s range, Nieves said an increase in the Employment numbers would be welcomed, explaining that the Employment numbers are slowly increasing, especially when considering where the baseline was established coming out of a slow, recessionary period. An Employment figure in the upper 50’s range would be welcome, but Nieves said that may not occur for some time, as it will be a slow and steady crawl.

February Inventories came in at 55.5 for 6.5 percent gain over January, which was down 3.5 percent compared to January.

“When I see inventories starting to build up a little stronger and supplier deliveries [down 1.5 percent to 52.0] slowing more, they are still not slowing to the point where demand is exceeding supply and that there was a lack of capacity and, therefore, there would have to be more employment, that would be the perfect scenario,” said Nieves.

When looking at Inventories, Nieves explained there is typically some sort of post-holiday lull, and many companies were cognizant of that and reluctant to build up inventory levels. And for the past three years most companies have had a close eye on cash flow and cash liquidity to keep cash flow free and not tie up a lot of capital by working to reduce inventories and get levels as close as possible to a just-in-time level.

This cautiousness is what has held back inventory growth, he explained.

“With high demand coming out of the gate in 2011, companies were caught short, because they did not have a substantial inventory to deal with the business, which is why I think we hit that contraction,” said Nieves. “Now, inventories are being built up some, and I would like to see them be built up a little more. Once you start building inventories to meet future—or current—demand, it is going to prompt some other indices to be impacted such as Employment, especially in a very labor-intensive area like non-manufacturing.”

Looking at Supplier Deliveries, which have seen fluctuation in the low 50’s in recent months, Nieves said these current levels are healthy in relation to the current business levels and the ability to satisfy business requirements, with that number moving into the upper 50s in a perfect scenario.

While the economic recovery appears to be in solid shape, things like high oil prices could quickly change things. And with the PMI’s Prices index up 1.2 percent to 73.3, Nieves said that the price per barrel of oil is a moving target on a daily basis.

“In non-manufacturing, with over-the-road trucking and remote locations, fuel is big,” said Nieves. “I don’t think it is as much pricing power to increase margins, where it appears to be more along the lines of maintaining margins and passing through those increases. We have to be very careful, because if demand starts to be very strong and there are inflationary pressures, coupled with increases in energy-related commodities, we need to look out for how that may impact respective industries and companies.”


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

Subscribe to Modern Materials Handling Magazine!

Subscribe today. It's FREE!
Find out what the world’s most innovative companies are doing to improve productivity in their plants and distribution centers.
Start your FREE subscription today!

Article Topics

ISM · NMI · Supply Chain Management · · All Topics
Latest Whitepaper
Mobile Solutions: Improving Supply Chain Efficiencies
To meet customer's ever-increasing service expectations and improve their business efficiency, companies are looking to their supply chain operations – especially material handling and warehouse operations managers.
Download Today!
From the February 2017 Modern Materials Handling Issue
In warehouses and DCs, planning solutions tend to take a back seat to execution system functions. Vendors are working to boost the trust factor using tools that break down forecasts and blend with analytics.
Automated Storage on the Move
Receiving 101: Setting the Table for Success
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
2016 Warehouse/DC Operations Webcast: Confronting omni-channel complexity
During this webcast we’ll examine the current activities, trends, and best practices in warehouse and DC operations management and how companies plan to address complex issues associate with omni-channel fulfillment.
Register Today!
EDITORS' PICKS
Johnson & Johnson: A vision for automation
J&J Vision Care brings together a variety of automated technologies, including an innovative...
Using AGVs at LEDVANCE
The lighting manufacturer reaped savings by reducing maintenance costs and product damage, and using...

System Report: Sustainable Distribution at REI
Specialty outdoor retailer REI’s new distribution center brings together the next generation of...
System Report: Whirlpool puts mobile robots to work
In Whirlpool Corp.’s Clyde, Ohio, factory, mobile robots have automated the delivery of parts to...