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Non-manufacturing activity in May turns in strong performance

By Jeff Berman, Group News Editor
June 04, 2014

Growth in the non-manufacturing sector remained intact in May, according to the Non-Manufacturing Report on Business from the Institute for Supply Management (ISM), which was released today.

The NMI, the ISM’s index to measure growth, increased 1.1 percent in May to 56.3 for its highest level since August 2013, when it checked in at 57.9. A reading above 50 represents growth. May’s NMI is 1.8 percent higher than the 12-month average of 54.5 and represents the 52nd consecutive month of growth in the non-manufacturing sector.

Each of the report’s four key metrics, including the NMI, saw gains in May. Business Activity/Production was up 1.2 percent at 62.1, and New Orders were up 2.3 percent to 60.5. Employment rose 1.1 percent to 52.4, with growth for employment up for the third straight month and at a higher rate. ISM reported that 17 of the 18 industries contributing to the report experienced growth in May; with the lone industry reporting contraction was mining.

“It was a very good month overall,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “It was encouraging to see both business activity/production and new orders crack 60, while employment was a little higher but seems to be lagging. That could be a timing issue. If we stay at these levels, that is going to have to give because it then becomes a capacity constraint as well.”

May supplier deliveries dropped 0.5 percent to 50.0. Inventories were flat at 55.5, as Nieves noted there was some inventory burn off in March that kept deliveries in line, with some build up in April, which was followed by the same level in May. Nieves said that might be the reason deliveries have not slowed more than they possibly should be and said he expects some slowing in deliveries in June based on these business levels.

Prices saw a 0.6 percent increase to 61.4 in May, with backlog of orders up 5.0 percent to 54.0, which Nieves said is a byproduct of increased activity within the non-manufacturing sector.

“That is increased activity in new orders but it has not transposed into deliveries yet, but it will,” he said. “That is why backlog will impact deliveries, I think.”

To date, Nieves said non-manufacturing activity in the first half of the year has been strong but an eye needs to be kept on prices, which are relatively high and mainly attributed to food-related commodities, metals, and petroleum-based and fuel-based products.

Going forward, the timing of the calendar year needs to be kept in consideration when viewing output in future months, according to Nieves.

“June may reflect some strength like May did, but historically activity tends to wane a little bit in the summer months, so, hopefully, we won’t see the summer months impact the economy that much,” he said. “Right now, we are getting a little steam and momentum, and it would be nice to ride that wave for a bit. It is a good situation to be in, and we are feeling it in business, with activity increasing and more foot traffic on the retail side, as an example.”

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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