ISM reports non-manufacturing growth intact to finish 2020

2019 non-manufacturing output finished on an upswing, 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 in December (a reading of 50 or higher indicates growth is occurring), which topped November’s reading by 1.1%. The NMI headed up for the 119th consecutive month, and the December NMI is 0.5% below the 12-month average of 55.5. The highest NMI reading for 2019 was February’s 59.7, and the lowest was September’s 52.6.

ISM reported that 11 non-manufacturing sectors reported growth in December, including: Retail Trade; Arts, Entertainment & Recreation; Management of Companies & Support Services; Health Care & Social Assistance; Utilities; Accommodation & Food Services; Information; Transportation & Warehousing; Professional, Scientific & Technical Services; Other Services; and Finance & Insurance. The six industries that reported a decrease in December — listed in order — are: Educational Services; Real Estate, Rental & Leasing; Wholesale Trade; Public Administration; Mining; and Construction.

The report’s key metrics were mixed in December, with:
-business activity/production up 5.6% to 57.2, growing for the 125th month in a row;
-new orders fell 2.2% to 54.9 also up for the 125th month in a row;
-employment slipped 0.3% gain to 55.2, growing for the 70th consecutive month;
-supplier deliveries slowed at a slower rate, from 51.5 in November to 52.5 in December (a reading above 50 indicates contraction);
-prices were flat at 58.5, rising for the 31st consecutive month; and
-inventories were up 0.5 to 51, growing for the fifth consecutive month

Themes in the report submitted by ISM member respondents reflected various themes, including steady growth and the impact of the holidays and weather, among other things.

A retail trade respondent pointed to the shorter-than-normal holiday season tightening sales opportunities, while initial trends have been favorable, and an information services respondent said that supply is good, while holiday sales are below plan.

In an interview, Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee said that the December NMI reading was solid, especially when taking into account factors, both good and bad, including: the issues manufacturing has faced; investor pessimism related to the yield curve; the low employment rate; and an increase in housing starts.

“Over all it is the consumer that is driving the services sector right now,” he said. “Business activity and production saw a jump in December, due to a combination of the holidays, the year-end flurry of activity, with a lot of companies looking to spend their dollars before year-end. As we are measuring that change, there was a bit of a quiet spell there for a bit, so even though there was not contraction things were sluggish at times so this is a nice little uptick. We also need to keep the potential trade resolution in mind, too, but that came before the Iran drone strike, as well as issues with the EU, too. I still feel like 2020 should be a good year, as we have little to no signs of inflation. We are also seeing an increase in the global economy. There was a drag for us on the export side, but things are starting to shape up.”

Addressing the December decline in new orders, Nieves said that is not a concern at this juncture, noting there was some hesitancy, or uncertainty, still.

“Once we get past the ‘noise’ in front of us now, I anticipate that January will end up being a pretty good month,” he said.