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ISM non-manufacturing data dips down in September but still in good shape

By Jeff Berman, Group News Editor
October 03, 2013

Following two strong months of non-manufacturing activity in July and August, September dipped down a bit but remained in a good place, according to the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business.

The ISM’s index to measure growth—the NMI—fell 4.2 percent from August’s 58.6, which stands as its highest recorded level ever since its January 2008 introduction. A reading above 50 represents growth. ISM said that economic activity in the non-manufacturing sector grew in September for the 45th consecutive month.

Each of the other key metrics in the report also decreased in September, with Business Activity/Production down 7.1 percent to 55.1, and New Orders off by only 0.9 percent to 59.6. Employment fell 4.3 percent to 52.7.

“With such a strong performance in August, there were not a lot of places this data could go in terms of how much higher it could go and how sustainable it was,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “We need to see how it trends out but looking at these numbers, they came off but New Orders was still strong and forward-leading, too. It is more of a matter of where we are going to be in the next three-to-four months. Things could finish up pretty strong in the fourth quarter compared to previous years, based on how things are heading into it. But it is contingent on what happens in Washington with the government shutdown.”

The current quagmire in Washington was a significant point of concern in the respondents’ comments section of the report even though this report was completed prior to the shutdown.

A public administration respondent said that the federal government’s spending is increasing greatly as agencies execute their final budgets and utilize fiscal year 2013 appropriated funds prior to their expiration on September 30, which has caused a major increase in procurement activity for goods and services. And a retail trade respondent explained that business has leveled off and there was not much occurring in the way of growth.

Addressing Business Activity and Production and its 7.1 percent decline, Nieves stressed that it is only one month worth of data and it needs to be viewed over a longer period. ISM respondents said that the turmoil and uncertainty of the current state of politics and U.S. involvement overseas continues to drag on the economy, and others pointed to things like seasonal economic growth and an improved economic environment.

“With these numbers for September, they would really look good for any other month, except following August which was a really good month,” Nieves said.

On the New Orders side, Nieves noted that non-manufacturing should finish 2013 strong, barring what happens on the political front. And given what has been happening on the manufacturing side in terms of solid New Orders growth also serves as a positive indicator for non-manufacturing, according to Nieves.
September Supplier Deliveries were down 4.5 percent to 50.0, and Inventories dropped 1.5 percent to 54.5. Prices rose 3.8 percent to 57.2.

“For Supplier Deliveries, the rate is basically unchanged in terms of rate of deliveries,” said Nieves. “We also see a little bit in the reduction of inventory month over month so there is some inventory burn-off as inventory was geared up for the prior month’s level. There is still inventory growth; it is just at a slower rate that is attributed to slowing business activity.”

As for Prices, Nieves explained that fuel has seen fluctuations in price as usual, explaining that anything in the petroleum arena is a timing issue as there is a large amount of forward-buying occurring. And when purchases are made at a higher rate it is reflected in the Prices index, due to the reliance on overland trucking for the non-manufacturing sector, with fuel costs and freight costs all factored into the total cost of ownership in the non-manufacturing sector.

If there is solid momentum heading into October in the non-manufacturing sector, with retail activity helping to drive momentum into the Holiday Season and putting aside seasonal adjustments—and depending on what happens in the nation’s capital—Nieves said fourth quarter activity has a strong potential upside.

About the Author

Jeff Berman headshot
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. .(JavaScript must be enabled to view this email address).


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Article Topics

News · ISM · NMI · All topics

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