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ISM November non-manufacturing report shows growth for 24th straight month

By Jeff Berman, Group News Editor
December 05, 2011

November was significant in the non-manufacturing sector as it marked the 24th consecutive month that growth in the sector occurred, according to the Institute for Supply Management (ISM).

The ISM’s index for measuring the sector’s overall health—known as the NMI—hit 52 in November, down slightly from October’s 52.9. A reading above 50 represents growth.
The November ISM Manufacturing Report on Business, which was released last week, was up 1.9 percent at 52.7.

In hitting the two-year mark for non-manufacturing growth, the ISM reported that three of its core metrics were up in November compared to October. Business Activity/Production was up 2.4 percent at 56.2, and New Orders was up 0.6 percent at 53.0. Employment dipped 4.4 percent to 48.9. But even with growth occurring for such an extended period, November marks the lowest PMI reading since January 2010, and it has fallen on a sequential basis for the last three months.

“Looking at how the NMI was off slightly, the anchor on that is the Employment index dropping to 48.9,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “But even with a positive jobs report out last week, is it really better when there is less job loss and less jobless claims, when there are still people out of work and others that may never go back to work. On an annual basis, there remains a recovery without a large influx of jobs, which is why it has been lagging with slow incremental growth. The good thing is at least it has been steady. We would be steaming along with good job growth, and that is what is lacking in the equation.”

And in the report’s respondents comments in respect to employment, Nieves said several comments spoke to the fact that it is a variable expense in non-manufacturing that makes up such a large component of non-manufacturing as they compare to business levels, orders, and consumer confidence levels.

Business Activity showed a strong gain, moving up to 56.2, which Nieves said last month may not have been so realistic, given the uncertainty around employment, consumer confidence, and all the global turmoil occurring, which is pulling back on spending patterns and capital reinvestment.

He added that a relatively strong Black Friday performance was not a driver for increased Business Activity, specifically from a timing issue point of view.

“It was up partly due to the build up heading up into the holidays,” he said. “This has more to do with preparation for Black Friday and cycle times, which dictates the things that need to happen ahead of time.

Coming off of October, which saw inventories dip 6.0 percent, November saw inventories regain that and a little more with a 7.0 percent uptick. Even with a 7 percent gain, it is not much above the 50 benchmark at 52.5.

“When you look at business activity and new orders being up, you need to have some replenishment and build up to handle that or else supplier deliveries slow down, although the rate of deliveries from October to November was about the same [down 2.0 percent to 50.0]. You cannot go with negative inventory and be able to handle the necessary order requirements, as your capacity requires some inventory.

Prices moved up 5.4 percent to 62.5, which Nieves said is a reflection of increased demand, coupled with increases in fuel prices that are nearly up a dollar year-over-year.

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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