ISM reports non-manufacturing begins 2020 with growth

Non-manufacturing output in January kicked off 2020 where 2019 left off, showing positive growth, according to the most recent edition of the Non-Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).

The index ISM uses to measure non-manufacturing growth—known as the NMI—was 55.5 in January (a reading of 50 or higher indicates growth is occurring), which edged out December’s 54.9 by 0.6%. The NMI headed up for the 120th consecutive month, and the January NMI is 0.1% above the 12-month average of 55.4.

ISM reported that 12 non-manufacturing sectors reported growth in January, including: Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Health Care & Social Assistance; Educational Services; Utilities; Accommodation & Food Services; Finance & Insurance; Retail Trade; Construction; Public Administration; Information; and Professional, Scientific & Technical Services. The six industries reporting a decrease in January — listed in order — are: Transportation & Warehousing; Wholesale Trade; Other Services; Arts, Entertainment & Recreation; Mining; and Real Estate, Rental & Leasing.

The report’s key metrics were mixed in January, with:
-business activity/production up 3.9% to 60.9, growing for the 126th month in a row;
-new orders rose 0.9% to 56.2 also up for the 126th month in a row;
-employment slipped 1.7% to 52.1, growing at a slower rate for the 70th consecutive month;
-supplier deliveries slowed at a slower rate, from 52.5 in December to 51.7 in January (a reading above 50 indicates contraction), slowing for the eighth consecutive month;
-prices decreased 3.8% to 55.5, growing at a slower rate for the 32nd consecutive month; and
-inventories were down 4.5 to 46.5, contracting after five consecutive months of growth

Themes in the report submitted by ISM member respondents were mixed, with comments pointing to a positive outlook, the coronavirus, and a challenging labor market, among others.

In an interview, Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee said January’s report beat expectations and that it was nice to see growth, instead of pullback, to start the year.

“Business activity was really strong and the new orders number tells us that we may be able to anticipate continued incremental growth for the sector,” he said. “Even though the employment number was down sequentially, there was still growth month over month. With a diminished labor pool, which affects the rate of growth for that index, it is just tough to backfill positions.” 

And he explained that the non-manufacturing sector does not have the capacity constraints it has had in the past, as evidenced in the slower supplier deliveries, which he said was largely due to weather-related issues as opposed to capacity issues. As for the decline in inventories, he attributed that to excess inventory that was carried over from the holiday season, with prices trending down in tandem with a current decline in global oil prices.

Given that non-manufacturing often experiences a post-holiday lull, Nieves said that over the past few years it has not been the case, with some decent January NMI readings.

“I am happy with where the numbers are,” he said. “They could always be better, but they could also be worse.”