ISM reports a strong end to 2016 for non-manufacturing activity

Data issued by the Institute for Supply Management (ISM) today showed that non-manufacturing activity finished 2016 with strong momentum.

The index ISM uses to measure non-manufacturing growth—known as the NMI—came in at 57.2 in December (a reading of 50 or higher indicates growth), matching November’s reading, while eclipsing the 12-month average of 55.0 and remaining at its highest level over the last 12 months, with the highest reading prior to that being October 2015’s 59.1.

Two of the report’s core four metrics, including the NMI, were flat or showed growth in December. Business activity/production dipped 0.3 percent to 61.4, which is down from November’s 61.7, which is the highest level since October 2015’s 61.8, but still growing for the 89th consecutive month and at the highest level. New orders saw a strong bounce, rising 4.6 percent to 61.6, and employment dipped 4.4 percent to 53.8 but remained in growth mode, even though it came on the heels of the November’s 58.2, which was its best month since December 2015’s 58.3.

ISM reported that 12 non-manufacturing industries reporting growth in December, including: Mining; Retail Trade; Finance & Insurance; Information; Arts, Entertainment & Recreation; Construction; Other Services; Health Care & Social Assistance; Professional, Scientific & Technical Services; Utilities; Transportation & Warehousing; and Accommodation & Food Services. The three industries reporting contraction in December are: Public Administration; Wholesale Trade; and Agriculture, Forestry, Fishing & Hunting.

A theme of positivity was prevalent in ISM member comments featured in the report. A finance and insurance respondent simply said things are “steady with optimism.” And, not surprisingly, a retail trade respondent said that sales were increasing in December due to the holidays. A transportation and warehousing respondent said that distribution of finished goods were ahead of last year along with forecasts in all channels, with e-commerce having the strongest growth.

Other notable metrics in the report included:
-supplier deliveries staying at 52.0 from November to December (above 50 for this metric means it contracted);
-prices up 0.7 percent to 57.0;
-backlog of orders down 3.0 percent at 48.0; and
-inventories up 0.5 percent to 52.0

Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, said that it was somewhat surprising and encouraging to see December match November in terms of non-manufacturing output.

When discussing November’s data last month, he explained that things might taper off because of the holidays, but growth in new orders and some of the other key indices, coupled with optimistic outlooks by ISM member respondents, were able to drive the strong end of 2016.

“Some of this can also be viewed as a psychological boost from the election, with some policy changes being thrown out there that could be advantageous for certain industries and companies, as it relates to foreign trade and trade agreements,” he said. “The psyche comes into play, with markets reacting and confidence increasing, and the valuations of companies increases, and purse strings get loosened by corporate finance groups. Another thing is where new orders are based on cycle time. You know all those orders are not coming in by December; they are carrying over to a different fiscal budget period, with people spending into their first quarter 2017 budget.”

While growth was intact in December, Nieves pointed out that the 3.0 percent decline in backlog of orders was due to companies “beefing up their channels,” whether it is the distribution channel within the supply chain, production capabilities, with strong output and no capacity being strained. There was a lot of efficiency within the supply chain.”