ISM Nonmanufacturing Index Rises in December But Details Are Mixed – Robert Hughes (01/10/2020)

The Institute for Supply Management’s nonmanufacturing NMI composite index rose to a reading of 55.0 from 53.9 in November. For this index, 50 is neutral, with readings above 50 suggesting expansion and readings below 50 suggesting contraction. Historically, readings above 48.6 have suggested expansion of the overall economy. The December result is the 125th consecutive month above 48.6 and the 119th month above 50, suggesting expansion in nonmanufacturing industries.

The majority of the sub-indexes remained above 50 in December with five showing increases, four declining, and one unchanged. Among the key components of the nonmanufacturing index, the business activity index came in at 57.2 in December, up from 51.6 in November, suggesting nonmanufacturing activity expanded in December, marking the 125th consecutive month of growth. For December, 10 industries in the survey reported growth while 7 reported contraction.

The nonmanufacturing new-orders index came in at 54.9, down from 57.1 in November (see bottom chart). Ten industries reported growth in new orders in December versus 6 industries with declining new orders. The new-export-orders index, a separate index that measures only orders for export, was 51.0 in December versus 52.0 in November. This index has been bouncing around near the neutral 50 level since mid-2019.  The six-month average is just 51.5, the lowest since 2016 (see bottom chart again).

Despite the weak performance of the new orders and new export orders indexes in the nonmanufacturing survey, the results are still stronger than data on the manufacturing sector. In the manufacturing report from the ISM that was released last week, the manufacturing new-orders index came in at 46.8, down slightly from 47.2 in November and the lowest reading since 2009 (see top chart). Just three industries reported growth in manufacturing new orders in December versus 12 industries with declining new orders. Among the top 6 industries, just one reported growth in new orders for the month. The manufacturing new-export-orders index, a separate index that measures only orders for export, was 47.3 in December and has been below 50 for five of the past six months. The average over the last six months is the lowest since July 2009, just after the Great Recession, and is consistent with slowing global economic activity and deteriorating trade relations (see top chart).

The nonmanufacturing employment index decreased to 55.2 in December from 55.5 in November. The reading suggests nonmanufacturing employment likely increased in December, but at a slightly slower pace than in November. The Bureau of Labor Statistics will be releasing its own employment report for December on Friday, January 10. Consensus estimates are for a 164,000 increase in total nonfarm jobs for the month.

The supplier deliveries index, a measure of delivery times for suppliers to nonmanufacturers, came in at 52.5, up from 51.5 in November. It suggests suppliers are falling further behind in delivering supplies to manufacturers with the slippage accelerating a bit from the prior month.

Today’s report from the Institute of Supply Management suggests that the nonmanufacturing sector continued to expand in December, though the pace likely remains modest by historical comparison. Comments from the nonmanufacturing survey participants confirm a mixed picture with some signs of solid growth and some signs of slowing growth. Furthermore, uncertainty remains a significant issue for many businesses, and sentiment overall remains cautious regarding growth prospects in the short term.

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