ISM Non-Manufacturing Index points to growth in November
December 03, 2010
The Institute of Supply Management’s (ISM) Non-Manufacturing Report on Business for November remained on the growth path it has been on for nearly a year.
The ISM’s index for measuring the sector’s overall health—known at the NMI—was 55.0 in November, a 0.7 percent increase from October. Like the ISM’s Manufacturing Report on Business, a reading above 50 represents growth. October’s NMI showed growth for the 11th consecutive month, with the index above 50 over that timeframe.
Three of the NMI’s core metrics were up in November. The Business Activity/Production Index at 57.0 was down 1.4 percentage points. But New Orders at 57.7 were up 1.0 percentage points, and Employment at 52.7 was up 1.8 percentage points.
“It is nice to see continued growth, which is slow and steady,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “But it leads me to believe that slow, incremental growth is more sustainable than some quick spikes followed by contractions.”
Even though Business Activity/Production was down a bit in November, Nieves said growth in New Orders balanced that out heading into December. But he cautioned that with Employment up nearly 2 percent—and being a seasonally-adjusted index, driven largely by retail—the holiday season to date has been better than expected. He said this shows how companies were gearing up for the holidays, with even companies that do not directly service retail being on the periphery and impacting consumer spending at the holidays.
And when the holiday season ends, Nieves said there is likely to be a bit of a pullback with employment numbers by February when the January numbers come out.
November Prices at 63.2 were down 5.1 percent from October. Nieves said this decline indicates that prices are increasing fast but not as fast as they were before. But with the index well above 50, he explained that Prices remain very strong.
“These prices are more commodity-driven,” said Nieves. “Fuel factors into that, and cotton is too right now, with cotton prices being the highest we have seen in more than 100 years. Cable and copper also have strong price points.”
Supplier Deliveries (up 1.5 percent at 52.5), Inventories (up 4.0 percent at 51.5), and Backlog of Orders (down 0.5 percent at 51.5) were all above 50 in November. As activity increases, Nieves said he would like to deliveries slowing at a faster rate as it starts getting into the upper 50s, and an increase in Inventories’ build up reflects great demand, which along with order backlog, ties directly with inventories and speed of delivery to end users.
“Those three metrics—as we see them growing—will give us an indication of if the economy is going to continue at a good strong pace,” said Nieves.
Should these indices continue to show steady growth over 50, it is likely to translate into good news for freight transportation demand and warehouse and distribution center growth.
And when whole sellers start to see increased sales activity in the non-manufacturing sector, which result in truck capacity shortages and deliveries slowing, in conjunction with whole seller business activity up, it is a positive sign, according to Nieves.
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