Non-manufacturing finishes 2013 still in growth mode, reports ISM
January 06, 2014
The Institute for Supply Management (ISM) reported today that non-manufacturing activity showed growth in December.
The ISM’s index to measure growth—the NMI—dipped only 0.9 percent from November to December, coming in at 53.0. A reading above 50 represents growth. ISM said that economic activity in the non-manufacturing sector grew in December for the 48th consecutive month. The November NMI is 1.7 percent below the 12-month average of 54.7.
Three of the report’s four key metrics, including the NMI, were down from November to December. Business Activity/Production was down 0.3 percent to 55.2 but still showed growth for the 53rd straight month. New Orders fell 7.0 percent to 49.4 and was down for the first time in 52 months since coming in at 48 in July 2009. Employment saw a 3.3 percent uptick to 55.8, growing for the 17th consecutive month as well as at a faster rate, said ISM.
“The report is decent overall, with the exception of the New Orders index,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “The decline in New Orders could be do to a little bit of an oversupply or overabundance going into the holiday season. We saw Inventories contract 6.0 percent down to 48, due to year-end burn-off as respondents typically use what they get. As far as the Non-manufacturing sector goes, it is really based on employment levels.”
With its 3.3 percent gain to 55.8, Nieves explained how Employment has pulled the NMI along at respectable levels, while adding that the decline in New Orders may be just a blip or the beginning of a trend while cautioning it is too soon to tell either way. Nieves maintained there would be continued growth on the Employment front, which is likely to be slow and steady and not have major spikes.
ISM member respondent comments in the report were mostly positive.
An information sector respondent simply noted “general business conditions have improved,” and a finance and insurance respondent pointed out that things are steady with no significant shifts in demand or supply.
“We are basically right under the baseline of 50 for New Orders,” explained Nieves. “We are measuring change month-over-month and there was one month where we did not have growth, but in the preceding months there has been continued growth every month, with some pretty good spikes. I am not overly concerned, as all indications are business levels and consumer confidence is up, and we need to see where it all pans out.”
December Prices moved up 2.9 percent to 55.1. Prices have been strong across a few different commodities like gasoline and perishable items, and continues to be driven by petroleum and petroleum-based products.
While there is not a ton of pricing power out there, Nieves noted in some aspects demand is exceeding supply but for the most part a lack of pricing power is prevalent.
Backlog of Orders fell 3.0 percent to 46.0, which is due to lower inventories.
Backlog of Orders, Inventories, and Supplier Deliveries, which was up 0.5 percent to 51.5 in December, tend to be what Nieves described as “hand-in-hand.”
Based on how 2013 ended and projections made in the ISM’s Semiannual report, which were largely positive, Nieves said the non-manufacturing sector is in a good place to begin 2014.
“I am optimistic 2014 will be better than 2013, which was not great and could have been a lot better,” he said. “There seems to be more confidence heading into this year.”
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