February 2014 ISM Non-Manufacturing: 51.6%, Down from 54.0% in Jan.; Employment Goes Into Contraction; One Respondent Notes ‘Unprecedented’ Negative Health Care Impact
From the Institute for Supply Management — a big miss (bolds are mine; some paragraph breaks added):
Economic activity in the non-manufacturing sector grew in February for the 49th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.
… The NMI® registered 51.6 percent in February, 2.4 percentage points lower than January’s reading of 54 percent.
The Non-Manufacturing Business Activity Index decreased to 54.6 percent, which is 1.7 percentage points lower than the reading of 56.3 percent reported in January, reflecting growth for the 55th consecutive month and at a slower rate. The New Orders Index registered 51.3 percent, 0.4 percentage point higher than the reading of 50.9 percent registered in January.
The Employment Index decreased 8.9 percentage points to 47.5 percent from the January reading of 56.4 percent and indicates contraction in employment for the first time after 25 consecutive months of growth. The Prices Index decreased 3.4 percentage points from the January reading of 57.1 percent to 53.7 percent, indicating prices increased at a slower rate in February when compared to January.
According to the NMI®, ten non-manufacturing industries reported growth in February. The majority of respondents’ comments indicate a slowing in the rate of growth month over month of business activity. Some of the respondents attribute this to weather conditions. Overall respondents’ comments reflect cautiousness regarding business conditions and the economy.
The 10 non-manufacturing industries reporting growth in February — listed in order — are: Other Services; Management of Companies & Support Services; Public Administration; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Utilities; Transportation & Warehousing; Educational Services; Professional, Scientific & Technical Services; and Information.
The eight industries reporting contraction in February — listed in order — are: Mining; Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Retail Trade; Accommodation & Food Services; Wholesale Trade; Construction; and Health Care & Social Assistance.
This is a cold water bath for the optimists. In the silver lining department, the backlog of orders went back into expansion (from 49.0% to 52%).
Health Care and Social Assistance contracted, even though Obamacare theoretically brought healthcare providers more customers.
The ISM composite, weighing Manufacturing at 12% and Non-Manufacturing at 88%, is (53.2% x .12 + .88 x 51.6%) is 51.79%, which is surely the lowest in quite a while.
The initial figures in ADP’s employment report came in well above the government’s jobs number in December and January. If that repeats on Friday, job additions will be under 100K. The ISM’s report today would seem to make that scenario more likely.
UPDATE: From one of ISM’s respondents — “The Affordable Care Act is creating significant financial uncertainty to healthcare organizations. With little warning, the negative impact on revenue has been unprecedented.”
UPDATE 2: The consensus predictions were 53.2% at Bloomberg and 53.5% at Business Insider.