ISM Non-Manufacturing: Down, But Continued Growth in December
The Institute of Supply Management (ISM) has now released the December Non-Manufacturing Purchasing Managers' Index (PMI), also known as the ISM Services PMI. The headline Composite Index is at 57.6 percent, down 3.1 from 60.7 last month. Today's number came in below the Investing.com forecast of 59.6 percent.
Here is the report summary:
“The NMI® registered 57.6 percent, which is 3.1 percentage points lower than the November reading of 60.7 percent. This represents continued growth in the non-manufacturing sector, at a slower rate. The Non-Manufacturing Business Activity Index decreased to 59.9 percent, 5.3 percentage points lower than the November reading of 65.2 percent, reflecting growth for the 113th consecutive month, at a slower rate in December. The New Orders Index registered 62.7 percent, 0.2 percentage point higher than the reading of 62.5 percent in November. The Employment Index decreased 2.1 percentage points in December to 56.3 percent from the November reading of 58.4 percent. The Prices Index decreased 6.7 percentage points from the November reading of 64.3 percent to 57.6 percent, indicating that prices increased in December for the 34th consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. The non-manufacturing sector’s growth rate cooled off in December. Respondents indicate that there still is concern about tariffs, despite the hold on increases by the U.S. and China. Also, comments reflect that capacity constraints have lessened; however, employment-resource challenges remain. Respondents are mostly optimistic about overall business conditions.” [Source]
Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows the Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.
The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 59.9 percent is down 5.3 from a seasonally adjusted 65.2 the previous month.
For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualize the short-term trends.
Theoretically, this indicator should become more useful as the time frame of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains our intention to keep this series on the radar.
Here is a table showing the trend in the underlying components.
Non-Manufacturing ISM® Report On Business® data is seasonally adjusted for the Business Activity, New Orders, Prices and Employment Indexes Manufacturing ISM® Report On Business® data is seasonally adjusted for New Orders, Production, Employment and Supplier Deliveries Indexes. *Number of months moving in current direction.
We will publish our next ISM Non-Manufacturing report on February 9.