Materials handling business: ISM Non-Manufacturing Index continues to show growth

Consistency appears to be the theme of late when it comes to the Institute for Supply Management’s (ISM) monthly report on the non-manufacturing sector.

The ISM’s index for measuring the sector’s overall health—known as the NMI—was 55.4 percent in May for the third 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 0.8 percentage points to 61.1 percent and growing for the sixth straight month.

Of the four indices that comprise the NMI, employment at 50.4 percent, a 0.9 percent gain from April, was up for the first time after 28 months of contraction. Among the other indices are Business Activity (at 61.1 percent) and New Orders, down 1.1 percent at 57.1 percent.

“I am a little cautious about the employment index, because it is coming from such a low point and would like to see how it pans out over the next two or three months to ensure that job growth is taking place in the non-manufacturing sector,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview.

Looking at the report overall, Nieves said there is nothing negative with only good news coming out of this data. And even with prices down 4.1 percent at 60.6 and dropping for the tenth straight month, inventories jumped 8.0 percent to 62.5 percent for the second straight month of growth.

And an increase of things like inventories and backlog of orders—up 6.5 percent at 56.0—bode well for positive signs of an economic recovery and growth, according to Nieves.

Comments in the report from purchasing and supply executives indicate growth is occurring, albeit tempered with a consensus of cautious optimism or a wait and see approach.

This feedback is to be expected, given how the economy was “battered and bruised” for a long period of time before signs of a rebound began to appear, said Nieves.
“Late last year and into early this year, we saw some signs of stagnant growth, and kept hearing about a jobless recovery, which results in a longer trend as far as the recovery goes…and people want to wait and see and we cannot blame them,” said Nieves.

Looking forward, Nieves noted that a decline in consumer spending has the potential to impact NMI growth but to what level is hard to tell as consumer confidence and consumer spending are large drivers for the economy.

And if jobs do not meaningfully come back and confidence in the economy wanes, it could have a negative impact on non-manufacturing industries, said Nieves.