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Non-manufacturing index slips but finishes first half of year with growth

Despite a slight decline, non-manufacturing activity finished the first half of 2019 firmly in growth mode, according to 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—slipped 1.8% to 55.1 (a reading of 50 or higher indicates growth is occurring). This reading represents the 113th consecutive month of NMI growth, with June’s NMI down 2.8% compared to the 12-month average of 57.9. June’s reading is the lowest over that span.

ISM reported that 16 non-manufacturing sectors grew in June, including: Real Estate, Rental & Leasing; Other Services; Finance & Insurance; Accommodation & Food Services; Health Care & Social Assistance; Mining; Construction; Educational Services; Professional, Scientific & Technical Services; Utilities; Public Administration; Information; Management of Companies & Support Services; Transportation & Warehousing; Retail Trade; and Wholesale Trade. The only industry reporting a decrease is Arts, Entertainment & Recreation.

The majority of the report’s key metrics, including the NMI, were down in June, including:
• business activity/production down 3% to 58.2, still growing for the 119th month in a row;
• new orders were off 2.8% to 55.8, still growing for the 119th consecutive month;
• employment fell 3.1% to 55, growing for the 64th consecutive month;
• supplier deliveries slowed to 51.5 (a reading above 50 indicates contraction);
• prices rose 3.5% to 58.9 and showed growth for the 25th consecutive month; and
• inventories rose 1% to 44 growing for the third straight month
Themes in the report submitted by ISM member respondents focused on various topics, including things like the impact of tariffs, the general economy, and supply chain issues, among others.

“The suppliers we do business with are ‘claiming tariffs’ to justify price increases. While some of these issues could be credible, it’s our opinion that this issue provides cover to increase margins, as few will detail the line-item impact,” said a Management of Companies & Support Services) respondent. A wholesale trade respondent pointed to the continued restructuring of ocean-carrier routing still causing havoc in the supply chain, although his company is experiencing minimal impact due to an increase in inventory levels.”

In and interview, ISM Non-Manufacturing Business Survey Committee Chair Tony Nieves said that June’s decline is not a cause for concern, as it reflects a leveling off from the uptick in output in May. ]

“June, July, and August can see things slow down somewhat,” he said. “How things shake out in September will be interesting, as it is typically a pivotal month.”

Assessing the collective state of non-manufacturing with 2019 now more than half over, Nieves said that the sector has met, if not exceeded, expectations.

“It has been pretty steady and consistent, in terms of the growth pattern for the non-manufacturing sector,” he said. “And with all of the uncertainty surrounding trade, it has not really derailed the economy or business positions all that much. As you look at the second half of the year, I think that if there is resolution on certain things we may see an increase in the rate of growth. As we get into 2010, with it being a pivotal election year, we may see the White House make moves to solidify its position [in re-election efforts].”

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About the Author

Jeff Berman's avatar
Jeff Berman
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review and is a contributor to Robotics 24/7. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis.
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