ISM reports continued growth in non-manufacturing sector to begin 2013

Non-manufacturing economic activity remained in healthy territory, growing for the 37th consecutive month, according to the Institute for Supply Management (ISM).

In its monthly Non-Manufacturing Report on Business, the ISM reported that the index it uses to measure non-manufacturing growth—known as the NMI—was 55.2 in January, down 0.5 percent from December and above the 12-month average of 54.5.

A reading above 50 represents growth. The PMI, the index on which the ISM’s Manufacturing Report on Business is based on, rose 2.9 percent to 53.1 in December, marking the fourth time it has been up in the past eight months.

The report’s four core metrics were down sequentially in January. Business Activity/Production was down 4.4 percent at 56.4, and New Orders were down 3.9 percent at 54.4, and Employment was up 2.2 percent at 57.5.

Even with some core metrics’ declines, Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, said in an interview that the report’s data was mostly positive.

“The [NMI] is only down 0.5 percent even though Business Activity and New Orders were down,” he said. “If you look at Employment and Supplier Deliveries (up 4.0 percent to 52.5), it lessens the impact of any downward rate of growth. Last month was a growth month, and we are still seeing a goods rate of growth off of that baseline.”

January Inventories fell 3.0 percent to 47.0. This continues a seasonal trend of late-year inventory depletion carrying over into the New Year at a time when non-manufacturing is growing and leading to cycle time replenishment.

Prices saw a 1.9 percent gain to 58.0, which could get higher given recent gasoline price increases.

“As fuel and petroleum-based products go, that is how pricing will be reflected in the non-manufacturing sector,” said Nieves.

January New Export orders showed strong growth, increasing 6 percent to 55.5.

Nieves said that while the ISM NMI does not directly track global economies, what is exported out of the non-manufacturing sector are in the knowledge management arena as it relates to management of companies and things like technology, among others.

At a time when there are still many mixed economic signals, Nieves said the 2013 growth prospects for non-manufacturing are solid, especially when it comes to employment.

“When you look at the Employment index, which is typically a lagging index, this may be one where it is transposing itself into more of a leading index,” he said. “It is a kind of a pull though. With the employment picture looking brighter and people having jobs, which leads to more discretionary spending and companies gaining confidence, it could be that coming off a dip in December there is more room for growth. February is truly going to be a pivotal month and give us maybe a glance of what the trend will be down the road.”

In the comments from ISM member respondents in the report, there were some positive takeaways regarding how things went in January.

A construction sector respondent observed that business is good while the overall environment is competitive, which Nieves said translates into tighter margins. And perhaps more encouraging was feedback from a retail trade respondent who said there seems to be some stabilization in recent months, with business a little more confident and more consumer participation.