ISM Non-Manufacturing Index up for 12th straight month in December

The Institute of Supply Management reported today in its December Non-Manufacturing Report on Business that the non-manufacturing sector remained on a growth path for the 12th straight month.

The ISM’s index for measuring the sector’s overall health—known at the NMI—was 57.1 in December, a 2.1 percent increase from November. Like the ISM’s Manufacturing Report on Business, a reading above 50 represents growth.

All of the NMI’s core metrics were up in December. The Business Activity/Production Index at 63.5 was up 6.5 percentage points. And New Orders at 63.0 were up 5.3 percentage points, and Employment at 50.5 was down 2.2 percentage points.

“Business Activity and New Orders showed some great strength in this report,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “Employment is growing slower, but it is still growth, which is encouraging.”

Some other key NMI indices to watch, according to Nieves, are Backlog of Orders (down 3.0 percent at 48.5 in December) and currently contracting. And when Backlog of Orders is growing and Supplier Deliveries (down 1.0 percent at 51.5 in December) are slowing, coupled with Inventories (up 1.0 percent at 52.5) on the cusp of 50—and possibly needing to be increased and built up—then Employment might stage a return to growth.

Presently, Employment remains in a “wait and see approach” mode, according to Nieves, explaining it remaining problematic in the economic recovery.

“These are the indices that we need to keep an eye on and se how things pan out in the next quarter or so,” said Nieves.

With the NMI and Business Activity/Production showing very good signs of growth, Nieves explained that while these indices are seasonally-adjusted, the true reflection of where things are going will be how January’s numbers turn out to see if there is any pull back, following the holiday season. The numbers beyond January will also be pivotal in ascertaining the direction of the economy going forward, too, he said.

What’s more, the overall economic outlook heading into 2011 is better than it was a year ago, and consumer confidence was at an all-time low at that time as well. And compared to 2009, retailers saw better numbers than projected in 2010, with ISM’s semi-annual report indicating that may again be the case in 2001, with a strong second half of 2011 expected.

Transportation and Warehousing were among the 14 industries reporting growth in December, according to the ISM report.

In non-manufacturing sectors which are very reliant on intermediaries in the supply chain, Nieves said things like OEM deliveries going straight to facilities and to companies in the non-manufacturing sector are very reliant on distribution channels, which pertain to transportation and warehousing.

“Transportation and warehousing and wholesale trade are the two intermediary elements on the non-manufacturing side for our respondents,” said Nieves.