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
Capturing Labor, Space, and Accuracy Returns with AS/RS
Find out how the demand of e-commerce and digital age expectations are driving the need to automate material handling with AS/RS solutions to improve labor productivity, save space, and reduce costs associated with inaccurate picks
Download Today!
From the November 2017 Modern Materials Handling Issue
A new facility, iPhones and a new WMS allowed cookware manufacturer Lodge to double its business for the fourth time in 20 years and shorten order delivery time from 10 days to three.
10th Annual Salary Survey: The Price of Performance
Let’s put Automatic Data Capture (ADC) Technology to Work
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
The State of the DC Voice Market
A lot has changed in the last 10 years, especially in voice technology. This webinar will cover the state of the voice market, review two leading voice solutions and help you gain a better understanding of the options and capabilities available today.
Register Today!
EDITORS' PICKS
Lodge Manufacturing: Distribution Cast in Iron
A new facility, iPhones and a new WMS allowed cookware manufacturer Lodge to double its business for...
Rochester Drug Cooperative: Robots ready for work
It’s still early stages, but Rochester Drug Cooperative is proving that mobile robotic piece...

System Report: Pouch sorter powers Stage’s fulfillment needs
How a hometown department store chain transformed its e-fulfillment processes with pouch sortation...
Cubing and Weighing Equipment: Measure Up
The use of cubing and weighing equipment is growing beyond dimensional weight applications.