ISM reports solid non-manufacturing growth in May

The index ISM uses to measure non-manufacturing growth—known as the NMI–headed up 1.8% to 58.6 (a reading above 50 indicates growth) in May. The May NMI is 0.9% ahead of the 12-month average of 58.6.

By ·

The May edition of the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business was strong and continued the ongoing growth thesis for the sector.

The index ISM uses to measure non-manufacturing growth—known as the NMI–headed up 1.8% to 58.6 (a reading above 50 indicates growth) in May. The May NMI is 0.9% ahead of the 12-month average of 58.6.

Non-manufacturing activity has now seen gains for 99 consecutive months, with the overall economy growing for the 104th consecutive month.

ISM said that 14 of the 18 non-manufacturing sectors reported growth in May, including: Wholesale Trade; Mining; Real Estate, Rental & Leasing; Construction; Retail Trade; Management of Companies & Support Services; Professional, Scientific & Technical Services; Transportation & Warehousing; Public Administration; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Finance & Insurance; Utilities; and Other Services. The only industry that was down for the month is Information.

The reports key metrics, including the NMI, were strong across the board in May, including:

business activity/production was up 2.2% to 61.3 and growing for the 106th month in a row;
new orders were up 0.5% to 60.5, growing for the 88th consecutive month;
employment increased 0.5% to 54.1, growing for the 51st consecutive month;
supplier deliveries slowed down at a faster rate% at 58.5 (a reading above 50 indicates contraction) and slowing for the 29th straight month;
prices headed up 2.5% to 64.3, growing for the 27th straight month;
inventories were up 0.5% at 57.5, heading up for the fourth month in a row; and
backlog of orders saw an 8.5% increase to 60.5, up for the eighth straight month
While the report was positive, comments submitted to the report by ISM member respondents highlighted the various issues that non-manufacturing purchasing and supply executives are watching closely, including: tariffs, trade deals, prices, and, in some sectors, a shortage of qualified labor and services personnel.

Another issue, coming from a wholesale trade respondent, noted how “the supply chain is shuttering because of a lack of drivers and equipment causing delays in multiple modes of transportation,” adding that “the activity to adjust to this is not causing stockouts yet, and we are increasing inventory levels in anticipation of worsening conditions.”

In an interview, Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, said that when looking at the four key metrics comprising the NMI, the one that rose the most was supplier deliveries, with its 4.0% gain, as well as the 8.5% increase for backlog of orders.

“This indicates that we have some capacity constraints, coupled with the shortage of truck drivers, that are putting a real burden on the supply chain right now,” he said.

Even with the capacity issues, non-manufacturing continues to see strong growth. Nieves explained that when assessing what future growth patterns may look like in the coming months, it is hard to say.

“I think we have room to see the index grow higher if the employment index continues to grow more in order to handle the requirements, yet unemployment is at 3%, so where is the labor pool coming from?” he said. “With business activity and new orders where they are, there should be room for growth. It remains to be seen how much slower supplier deliveries go, as they have already slowed down considerably. That means business activity and new orders are driving this composite index more, while we see how much more upside there is. If we do see the index grow, it may not be by all that much only because of those variables. Even if the PMI goes down a little bit, it will still be in a good spot.”

Looking at non-manufacturing inventories, Nieves said the way to combat slowing deliveries and the timely availability of products is to build inventories up, provided there is not an inventory glut.

On the pricing side, many of the commodities seeing price gains in May were freight-related, including air freight, diesel, labor, and transportation costs. Also seeing gains were steel and aluminum, which Nieves said is reflective of supply and demand forward buying based on tariffs.

“Companies in many cases are not holding prices; they are changing prices like a moving target,” he said. “It is driven by demand, as people are anticipating increases in product and resulting in the cost of goods sold being affected so therefore there is forward buying to try to mitigate that cost impact.”

Nieves said non-manufacturing output in May slightly exceeded expectations, especially coming off of a slight decline in April.

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!

Article Topics

All Topics
Latest Whitepaper
A Supply Chain Potluck?
Most executives understand a physical supply chain and realize the potential cost and time-to-market benefits of contracting with partners within this supply chain. But most executives are ill informed about the potential benefits that could be obtained by digitizing today’s complex supply chains.
Download Today!
From the October 2018 Logistics Management Magazine
Volumes are strong and steady, service is improving, yet our panel of the nation’s foremost rail experts says that there’s still plenty of work to be done on the nation’s rails to help shippers fill what’s now a massive capacity need.
Lift Truck End-of-life Management: Have a plan
Inventory Management 101: Time to step up to the plate
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
See Your Supply Chain Like Never Before
How do the world’s top supply chains see further and act faster? Many of them are gaining an understanding of how their supply chain flows are tied to outcomes to stay ahead of problems, and gain whole new efficiencies. Join us to learn more.
Register Today!
8th Annual Rail/Intermodal Roundtable: Work in progress
Volumes are strong and steady, service is improving, yet our panel of the nation’s foremost rail...
Transportation Best Practices and Trends: Frios’ cool solution for a hot seller
Gourmet ice pop maker adopts collaborative cold chain solution to keep profits from melting away due...

35th Annual Quest for Quality Awards: Scaling to new heights of service
Which carriers, third-party logistics providers and U.S. ports have reached the pinnacle of...
29th Annual State of Logistics Report: Carriers take the wheel
As if higher rates and capacity shortages weren’t enough to worry about, shippers must now deal...