Non-manufacturing activity is off to a good start in 2012, according to ISM data

Non-manufacturing activity is off to a good start in 2012, based on the results of the Institute for Supply Management’s January NMI, its index for measuring the sector’s overall health.

By ·

Non-manufacturing activity is off to a good start in 2012, based on the results of the Institute for Supply Management’s January NMI, its index for measuring the sector’s overall health.

The January NMI—at 56.8—is up 3.8 percent over December’s NMI and is at its highest level since reaching 56.3 in March 2011. A reading above 50 represents growth. The January ISM Manufacturing Report on Business, which was released earlier this week, was up 1.0 percent at 54.1. Read Modern’s archive of NMI reports.

Each of the core metrics for the report showed growth from December to January. Business Activity/Production was up 3.6 percent at 59.5, and New Orders were up 4.8 percent at 59.4. Employment increased 7.6 percent to 57.4.

“This really a strong month and the big thing which drove it was the New Orders indices well as Employment, which rose at a level we have not seen since 2006,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “It is a pleasant surprise, and we hope it is not a head fake and is a strong number that is sustainable.”

What’s more, comments provided to the ISM by its NMI survey respondents indicate that the economy is showing consistent growth. A retail respondent noted that the economy is showing signs of stabilization as well as in the supply chain, which appears to be calming inventory and sales positions.”

January’s strong month is somewhat surprising in the sense that it typically trends a bit downward followed by a pickup later in the quarter, whereas it came out of the 2012 gate very strong.

This was especially true with the 7.6 percent bump in January Employment. But while the number is very promising, Nieves said it is important to note whether or not it will be an anomaly.

“Employment is a lagging index and there is a cycle time that companies have when it comes to hiring, which is reactionary to business,” said Nieves. “The majority of companies surveyed are showing slow incremental additions when it comes to hiring, which is more of a trickle effect at this point.”

Inventories in January dipped 1.5 points to 47.0, which is in line with the trend of companies reducing inventory closer to the end of the year. Nieves explained that this shows a burn off of inventories, due to an increased level of business and new orders that inventories are likely to increase in February as companies replenish their business levels.

Backlog of Orders in January was up 4 percent to 49.5, which is still contracting as it is below 50. Nieves said this speaks to the fact that there is currently not a growth in backlog of orders and instead is contracting slower.

“If we see these levels carry forward in the next month or two, we are going to see a backlog in supplier deliveries in the mid-50s range if we sustain this level of business activity and new orders,” said Nieves. “Inventories will grow because they have to grow. The current inventory levels are not sustainable where they are.”

Prices moved up 1.5 percent to 63.5, which Nieves noted was primarily driven by fuel costs in non-manufacturing petroleum-based products like diesel fuel.

With such a strong start to non-manufacturing in 2012, coupled with other positive economic indicators, Nieves stated it is a good indication so far but it remains to be seen how things trends out in the coming months whether growth is flat or shows upticks.

“If it trends out like this over the next month or two, then we are in for a nice ride with the economy,” he said.


About the Author

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. Contact Jeff Berman

Subscribe to Logistics Management Magazine!

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!

Latest Whitepaper
The Cloud Supply Chain Data Network
Understanding the Power of a Shared Online Network to Connect Global Partners and Achieve High Data Quality Levels
Download Today!
From the November 2016 Issue
The third time is the charm for this U.S. manufacturer on the hunt for a third-party logistics (3PL) provider that could successfully combine transportation services and technology capabilities under one roof.
Warehouse & DC Operations Survey: Ready to confront complexity
2016 Quest for Quality Awards Dinner
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Digital Evolution: Streamlining Logistics and Supply Chain Operations
In this FREE virtual conference we'll define the challenges facing operations and offer solutions designed to create dynamic, automated networks that offer seamless communication, improved collaborative third-party relationships, and the ability to respond to changes at a moment's notice.
Register Today!
EDITORS' PICKS
Making the TMS Decision: Ariens Finds Just the Right Fit
The third time is the charm for this U.S. manufacturer on the hunt for a third-party logistics (3PL)...
Motor Carrier Regulations Update: Caught in a Trap
The fed is hitting truckers with a barrage of costly regulations in an era of scant profits....

25th Annual Masters of Logistics
Indecision revolving around three complex supply chain elements—transportation, technology and...
2016 Quest for Quality: Winners Take the Spotlight
Which carriers, third-party logistics providers and U.S. ports have crossed the service-excellence...