ISM December non-manufacturing report is up for 25th straight month

By Jeff Berman · January 5, 2012

While November marked the two-year anniversary of consecutive growth in the non-manufacturing sector, December made sure the push for three straight growth years got moving in the right direction, according to the Institute for Supply Management (ISM).

The ISM’s index for measuring the sector’s overall health—known as the NMI—checked in at 52.6 in December up 52 from November,  and down slightly from October’s 52.9. A reading above 50 represents growth.

The December ISM Manufacturing Report on Business, which was released earlier this week, was up 1.2 percent at 53.9.

Each of the core metrics for the report was flat or grew, albeit slightly from November to December. Business Activity/Production was flat at 2.4 percent at 56.2, and New Orders were up 0.2 percent at 53.2. Employment rose 0.5 percent to 49.4. Prior to December, the PMI had fallen in three of the previous four months, with November representing the lowest PMI reading since January 2010.

“This is slow growth,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “Employment continues to lag, though. Our respondents are measuring what they add month over month for their respective companies. It is very much mixed, with some adding jobs and growing and some holding tight.”

The combination of slow growth and non-manufacturing companies expecting very little capital reinvestment points to future growth—in the form of new orders and business activity—continuing to advance at a relatively slow pace, said Nieves. But employment is likely to continue to me a drag on the report’s other metrics as limited employment gains are being predicted.

Even with slow growth being prevalent, ISM member companies that were surveyed for the report were optimistic in their thoughts about business conditions in December. Respondents cited things like a year-end uptick in activity, stabilizing business, and gradual increases in demand, among others.

“These comments speak to slight optimism,” said Nieves. “They are reflective of what the report is indicating, according to company and industry as a whole.”

With Business Activity/Production flat at 52.6, it is largely viewed as a good sign, considering the myriad concerns regarding the economy.

But with the NMI being seasonally-adjusted, coupled with a post-holiday lull driven by a holiday shopping retail uptick, Nieves said that can both drive the numbers up a bit and also mask total activity.

“We typically see a bit of a dip downward in January which then comes back up, so we need to look at the first quarter collectively rather than each individual month,” said Nieves.

Following a 7.0 percent gain in November inventories, December saw them fall 4.0 percent to 48.5.

When this data came into ISM, Nieves explained that it is in conjunction with year-end activity for companies, which is prime time for reducing inventory levels, rather than replenishing inventory.

“This number was not surprising, given where backlog of orders came in (down 2.5 percent to 45.5), as companies were burning off inventory and reducing the amount of backlog in the system before year-end to get their numbers up,” said Nieves.

Prices were down 1.3 percent to 61.2, and while they were down from November Nieves noted they still remain at a strong level while growing at a slightly slower rate. 

While non-manufacturing data typically lags behind manufacturing data coming in an out of a recession, Nieves said if non-manufacturing can match manufacturing levels in the next quarter, it will serve as a strong sign of growth and momentum as non-manufacturing makes up 80 percent of all economic activity.

“If that is happening, we will know we are in good shape,” said Nieves.


About the Author

Jeff Berman
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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