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Despite decline, non-manufacturing sector still on growth path, reports ISM

The PMI had grown for 94 consecutive months, and November’s reading is 0.4% ahead of 12-month date average of 57.0.

By ·
{scmr_abstract}
By ·

Even with a mild sequential decline, non-manufacturing activity in November remained strong, according to the new edition of the Non-Manufacturing Report on Business issued today by the Institute for Supply Management (ISM).

The index ISM uses to measure non-manufacturing growth—known as the NMI––fell 2.7% to 57.4 1 (a reading above 50 indicates growth) in November. This follows October’s 60.1, which is the highest reading since the report’s inception in 2008, as well as the highest reading compared to pre-2008 composite index calculations, with an August 2005 high of 61.3.

The PMI had grown for 94 consecutive months, and November’s reading is 0.4% ahead of 12-month date average of 57.0. 

ISM said that 16 non-manufacturing industries reporting growth in November, including: Retail Trade; Wholesale Trade; Utilities; Transportation & Warehousing; Real Estate, Rental & Leasing; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Other Services; Public Administration; Information; Finance & Insurance; Construction; Management of Companies & Support Services; Accommodation & Food Services; and Professional, Scientific & Technical Services. The only industry reporting contraction in November is Agriculture, Forestry, Fishing & Hunting.

Like the NMI, most of the report’s core metrics were down sequentially from October to November, but they all remained on the right side of growth.

Business activity/production was off 0.8% to 61.4, growing for the 100th consecutive month. New orders saw a 4.1% decline to 58.7, but also remained up for the 100th consecutive month. Employment was down 2.2% to 55.3, while still growing for the 45th consecutive month. Inventories headed up 2% to 54.5, growing for the eighth straight month.   

Comments submitted to the report by ISM member respondents were mostly positive for various reasons.

A management of companies & support services respondent said that domestic business is strong, with positive growth indicators for 2018 from both internal sources and client feedback. A professional, scientific & technical services respondent said that business seems to be leveling off, due in large part to the holiday season approaching. And a retail trade respondent said that business is strong but now as strong as the third quarter.

November’s NMI decline was not entirely surprising, according to Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee.

“We had such a high rate of growth and knew there would be some pullback eventually but did not know exactly when,” said Nieves in an interview. “I always felt the previous rate of growth was not always going to be sustainable, especially with how it popped up in September and October. This NMI is still ahead of the 12-month average. We are measuring change month-to-month so as that bar keeps moving, we would like to see it continue to cascade but that is not reality. All the key metrics still remain above the baseline of 50, which bodes well for things over all.”

Nieves highlighted how non-manufacturing continues to show strong momentum, with both the NMI and business activity/production growing for the last 100 months through November.

This speaks to a sense of economic confidence to a large degree, he explained, with growth largely intact across the board for myriad industries. For the few pockets of sectors that are not seeing growth, he attributed that more to market conditions, as the global economy is trending up, coupled with gains in consumer confidence, and the tax reform plan, which is seen as favorable to business, too.

“Whether or not the tax plan results in the re-shoring of money for capital reinvestment remains to be seen,” he said. “If it happens, it would be good for the sector obviously, as it could lead to more discretionary spending and more jobs.”

With 2017 on the home stretch, Nieves said that 2017 has been a good year for non-manufacturing, as the baseline for growth changes on a month-to-month basis.

“Looking at the NMI as it relates to things like GDP and consumer confidence and other variables like unemployment, the current economic capacity is [incredible] at the moment,” said Nieves. 


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. 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. Contact Jeff Berman

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