November non-manufacturing activity still showing growth, reports ISM

Even with a decline from October, non-manufacturing activity for the month of November remained on solid footing, according to the most recent edition of the Non-Manufacturing Report on Business from the Institute for Supply Management (ISM).

The index ISM uses to measure non-manufacturing growth—known as the NMI—came in at 55.9 in November (a level of 50 or higher indicates growth), which was down 3.2 percent compared to October. The PMI is 1.4 percent below the 12-month average of 57.3, and the non-manufacturing sector has seen growth for 70 months in a row, while the overall economy has now grown for 76 straight months.

Including the PMI, each of the report’s four key metrics was down in November. Business Activity/Production fell 4.8 percent to 58.2, coming off of a strong October and still on the right side of growth for the 76th straight month. New orders dropped 4.5 percent to 57.5 while showing growth for the 76th month, and employment was off 4.2 percent to 55.0 in growing for the 21st month.

Comments submitted by ISM member respondents included in the report were akin to recent reports in that they were somewhat mixed.

Annual same-month sales declines were cited by a wholesale trade respondent, and a finance and insurance respondent pointed to conditions holding steady for a profitable year and fourth quarter. And a retail trade respondent observed that continuing competitive pressure in the grocery retail industry has led to implementation of lower prices across all markets and increased focus and efforts from the organization to reduce the cost of goods sold.

“Coming off of such a strong rate of growth in October, I was questioning whether it would be sustainable in November, but things are still at a very good level,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee. “Business activity/production and new orders are still strong despite their declines. And supplier deliveries (up 1 percent to 53.0 and slowing at a faster rate) are carryover from the prior month and was also the case with inventories, too (up 2.0 percent to 54.5), with peak holiday shopping right around the corner.”

November prices were up 1.2 percent to 50.3 after two months of contraction, with Nieves explaining there is still pricing power intact in the non-manufacturing sector, with consumers being very discretionary as far as how they make purchases on the retail side and are equipped with price comparison apps from retailers doing what they need to do to remain competitive.

In looking at November’s numbers, Nieves said the correlation among supplier deliveries, inventories, and backlog of orders (down 3.0 percent to 51.5) collectively correlates back to business activity levels.

“The decline in backlog of orders is almost commensurate with what happened with business activity,” he said. “The inventory buildup is more of a reflection of what was happening the previous month, and deliveries have fallen a bit and to a degree reflects a shortage in overland trucking capacity still, which speaks to the slight decline in supplier deliveries. There is also a variable of labor, too, in that as business wanes, labor is cut back, too.”

When asked how things are shaping up on a year-to-date basis for the non-manufacturing sector, Nieves said things are in a good spot, with expectations for December strong and hopefully leading to a nice finish for the year. Current new orders levels could head up and lead to solid December in terms of business activity, coupled with prices in a good spot, although the strength of the dollar had a negative impact on non-manufacturing new export orders for the first tine in six months as they dropped 5.0 percent to 49.5.

What’s more, he explained, things could have been worse, especially when factoring in an uncertain geopolitical environment at the moment, which has been weathered well so far.