December 5, 2017

November ISM Non-Manufacturing: 57.4 Percent, Down from 60.1 Percent in October

Filed under: Economy — Tom @ 10:01 am

As noted yesterday, there’s a bit of drama here, as a rise in this index from October’s 60.1 percent would be a nine-plus year record for this index. (ISM revised the methodology it used in its old “services” index in 2008.)

CNBC reported earlier this week that FactSet expects the reading to drop to a still very healthy 59.0 percent.

HERE’S THE REPORT — A letdown, though not yet a cause for significant concern (bolds and paragraph breaks added by me):

Economic activity in the non-manufacturing sector grew in November for the 95th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The NMI® registered 57.4 percent, which is 2.7 percentage points lower than the October reading of 60.1 percent. This represents continued growth in the non-manufacturing sector at a slower rate.

The Non-Manufacturing Business Activity Index decreased to 61.4 percent, 0.8 percentage point lower than the October reading of 62.2 percent, reflecting growth for the 100th consecutive month, at a slightly slower rate in November. The New Orders Index registered 58.7 percent, 4.1 percentage points lower than the reading of 62.8 percent in October.

The Employment Index decreased 2.2 percentage points in November to 55.3 percent from the October reading of 57.5 percent. The Prices Index decreased by 2 percentage points from the October reading of 62.7 percent to 60.7 percent, indicating prices increased in November for the sixth consecutive month.

According to the NMI®, 16 non-manufacturing industries reported growth. The rate of growth has lessened in the non-manufacturing sector after two very strong months of growth. Comments from the survey respondents indicate that the economy and sector will continue to grow for the remainder of the year.

The 16 non-manufacturing industries reporting growth in November — listed in order — are: Retail Trade; Wholesale Trade; Utilities; Transportation & Warehousing; Real Estate, Rental & Leasing; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Other Services; Public Administration; Information; Finance & Insurance; Construction; Management of Companies & Support Services; Accommodation & Food Services; and Professional, Scientific & Technical Services. The only industry reporting contraction in November is Agriculture, Forestry, Fishing & Hunting.

This may seem contrarian, but I’m seeing the drop in the Business Activity and New Orders elements as a bit of a relief, because they should mean that inflationary concerns shouldn’t be as serious, and that the Fed won’t overreact and raise interest rates too quickly.

Backlog of Orders, the third major GDP driver, fell to 51.5 percent from 53.5 percent. That’s still positive, but I don’t want to see that value drop below 50 percent.

If we have a repeat of the 2.7-point drop next month, it might be time to get just a little nervous, but I don’t see that happening.

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