Materials handling business: ISM NMI going in the right direction
May 20, 2010 - MMH Editorial
Following a 2.4 percent gain from February to March, the April report on the non-manufacturing sector from the Institute for Supply Management stated that its index for measuring the sector’s overall health—also known as the NMI—came in at 55.4 percent for the second straight month.
Like the ISM’s Manufacturing Index, a reading of 50 percent or higher represents growth.
While the percentage did not improve on a sequential basis, ISM officials noted that the non-manufacturing sector is still growing. This sentiment was also apparent in the ISM’s Non-Manufacturing Business Activity Index, which expanded by 0.3 percentage points to 60.3 percent and growing for the fifth straight month.
“This [index] is at a good level, and we have a quarter of straight growth on the non-manufacturing side now,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “It appears that we are on the verge of true sustainable growth in the non-manufacturing sector.”
Nieves pointed out that the Non-Manufacturing PMI is equally weighted with business activity, new orders, employment, and supplier deliveries. And one thing to note, he said, is that month-over-month, business activity is up slightly, new orders are down [4.1 percent to 58.2], and the offset of that, with new orders being down and employment down slightly [0.3 percent to 49.5] is the slowing of supplier deliveries, with supplier deliveries still up 4.0 percent to 53.5.
Prices in this month’s NMI were up 1.8 percent at 64.7
With overall national employment numbers still lagging and consumer spending slowly crawling up, there is some sentiment that the ongoing economic recovery is going to remain slow and led by manufacturing rather than consumer spending, which accounts for roughly 70 percent of total economic activity.
“Manufacturing led the economy going into the recession period, and it is leading coming out, which has been what we have seen historically in regards to the economy,” said Nieves. “Regarding what we are seeing with consumer spending, it is getting better based on the industries covered in the NMI. A key piece is employment, which always lags and can be a cycle-time thing. Based on our members comments, there is still a ‘wait and see’ approach to how sustainable this growth is before they loosen the purse strings and start bringing people on board. Hopefully we will see even more of an uptick when employment continues to turn the corner, as well as with the economy and the rest of the indices.”
Stimulus impact: As the effects of the 2009 American Recovery and Reinvestment Act begin to ebb, Nieves said its subsequent impact on economic growth remains to be seen at this point when looking at manufacturing industries versus non-manufacturing industries.