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ISM reports non-manufacturing activity off to a good start in 2014

By Jeff Berman, Group News Editor
February 05, 2014

Non-manufacturing activity headed in the right direction from December to January, according to the Non-Manufacturing ISM Report on Business released by the Institute of Supply Management (ISM) today.

The NMI, the ISM’s index to measure growth, headed up 1.0 percent to 54.0 in January. A reading above 50 represents growth. ISM said that economic activity in the non-manufacturing sector grew in January for the 48th consecutive month. The January PMI is 0.6 percent below the 12-month average of 54.6.

Each of the report’s four key metrics, including the NMI, saw gains in January. Business Activity/Production was up 2.0 percent to 56.3 and grew for the 54th straight month. New Orders inched up 0.5 percent to 50.9. Employment was up 0.8 percent to 56.4.

“The numbers overall are good,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “Looking at New Orders, there are seasonal adjustments factored into the data would impacted it by a full percentage point upwards sequentially. Employment outpaced New Orders and is showing a lot of strength, which means one of three things: there is over hiring, which I don’t think is the case; there could be some future things in the pipeline that have not translated into New Orders yet; or there could be capacity constraints because for years everybody was doing more with less so some top-line growth is causing capacity constraints, leaving the need to bring on more people.”

Supplier Deliveries at 52.5 slowed down 1.0 percent (a reading above 50 indicates slower deliveries), and Inventories increased by 2.5 percent to 50.5, reflecting growth after a month of contraction, with companies in December making a concerted effort to reduce inventory levels, which Nieves said was to be expected.

Paced by fuel-driven increases, non-manufacturing prices headed up 2.4 percent to 57.1, growing for the 52nd straight month.  Backlog of Orders contracted for the third straight month at 49.0, coming in 3.0 percent higher than December’s 46.0. Exports and Imports each contracted by 2.5 percent, coming in at 49.0 and 48.0, respectively.

“Many of the report’s respondents pointed to an improvement in business conditions, with some noting that weather conditions impacted business,” said Nieves. “And some noted uncertainty in the overall economy for some but overall more are positive about economic growth.”

Coming off of the December report, Nieves said that the non-manufacturing sector and the industries within it continue to chug along and stay on a slow and steady incremental growth path.

“We would like it to move faster, but conversely it would be worse if things were moving in the other direction,” he said. “Looking ahead, Employment growth is key for the sector. If it shows a holding pattern or growth, it is huge. And I would like see New Orders keep pace with Employment; I don’t like where it is right now, and I want to keep an eye on where that goes.”

Nieves said it is encouraging to see the NMI above 50, adding that if it remains there in the latter part of the quarter it will show there is confidence on the part of consumers and the general economy overall.

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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