Non-Manufacturing Sector Continues to Grow

The Institute for Supply Management (ISM) reported today in its monthly Non-Manufacturing Report on Business that non-manufacturing activity for the month of January continued to point towards growth, even though it saw a mild decrease compared to December.

The index ISM uses to measure non-manufacturing growth—known as the NMI—came in at 53.5 in January (a level of 50 or higher indicates growth), which was 2.3 percent below December, while economic activity in the non-manufacturing sector continued to grow for the 72nd month in a row. The current PMI is 3.4 percent below the 12-month average of 56.9.

Each of the report's four key metrics, including the NMI, was down in January. Business activity/production saw the steepest decline, down 5.6 percent to 53.9, while still showing growth for the 78th month in a row. New orders dropped 2.4 percent to 56.5 and showed growth for the 78th consecutive month, albeit growing at a slower rate, with nine non-manufacturing sectors reporting growth in new orders and seven sectors reporting contraction. Employment fell 4.2 percent to 52.1 but has been growing for the last 23 months.

Ten non-manufacturing sectors reported growth in January, including: Finance & Insurance; Real Estate, Rental & Leasing; Utilities; Retail Trade; Information; Construction; Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Management of Companies & Support Services; and Public Administration, while eight reported contraction.

Comments from ISM member respondents included in the report were mostly positive.

A wholesale trade respondent noted that he is continuing to see record low commodity prices drive down product costs, and a retail trade respondent pointed to improving sales, coupled with increased optimism, while still being concerned about the impact of global unrest.

“We are still north of 50 with the PMI,” said Tony Nieves, chair of the ISM's Non-Manufacturing Business Survey Committee, in an interview. “It is early in the year, and there are a lot of things happening, whether it be geopolitically, stock market volatility that has impacted consumer confidence levels, but things are still chugging along. Even with the declines in business activity and employment, it did not impact new orders as much, which leads us to believe there is stuff in the pipeline for next month.”Backlog of orders were up 2.0 percent to 52.0.

Nieves said these metrics are all in sync, with deliveries slowing slightly, inventories showing slight growth.

“Those figures correlate nicely to one another in respect to the current state of non-manufacturing as things have leveled off somewhat,” he explained.

As for the current state of things, Nieves said it is broken up into two camps: one groups that thinks the non-manufacturing is entering into a recessionary period and another maintaining that despite the many obstacles at the moment, non-manufacturing remains on a slow and steady growth path that it has been on in the past and it is made up of a group of sectors that is weathering the storm pretty well, because it is not

January supplier deliveries at 51.5 slowed down in January (a reading above 50 indicates slower deliveries) and were 3 percent higher than December, while inventories still grew while down 1.5 percent to 51.5. as directly tied to commodity markets like the manufacturing sector is.

Prices fell 4.6 percent to 46.4 in January, which Nieves said did not come as a surprise, as fuel prices are at its lowest levels in years and subsequently impact so many other different commodity costs, which in turn makes it more efficient to move products because of low fuel prices.

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