Non-manufacturing sees sequential decline but finishes 2017 with growth, reports ISM

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Non-manufacturing activity trended down slightly in December but still remained in solid growth mode, according to data released today by the Institute for Supply Management (ISM) in its Non-Manufacturing Report on Business.

The index ISM uses to measure non-manufacturing growth—known as the PMI––dropped 1.5% to 55.9 (a reading above 50 indicates growth) in December. Both November and December were down compared to October’s 60.1, which is the highest reading since the report’s inception in 2008, as well as the highest reading compared to pre-2008 composite index calculations, with an August 2005 high of 61.3.

Even with a decline in December, the PMI has grown for 96 consecutive months, and December’s reading is 1.1% below the 12-month average of 55.9. ISM said that 16 non-manufacturing industries reporting growth in December, including: Retail Trade; Utilities; Arts, Entertainment & Recreation; Other Services; Health Care & Social Assistance; Accommodation & Food Services; Finance & Insurance; Real Estate, Rental & Leasing; Transportation & Warehousing; Mining; Construction; Wholesale Trade; Public Administration; and Professional, Scientific & Technical Services. The three industries reporting contraction in December are: Information; Educational Services; and Management of Companies & Support Services.

Most of the report’s key metrics saw declines from November to December, including:

  • business activity/production down 4.1% to 57.3 but still growing for the 101st consecutive month;
  • new orders off 4.1% to 57.3 while also growing for the 101st consecutive month;
  • employment up 1.0% to 56.3, growing for the 46th straight month; and
  • prices up 0.1% to 60.8, up for the 7th straight month, among others

The majority of ISM member comments included in the report painted an optimistic picture for non-manufacturing over all, even with December’s decline. A finance and insurance respondent cited ending 2017 with profits and business levels on track. And a public administration respondent said there was steady end-of-year demand along with forecasting a substantial increase in 2018 activity.

“We have had two months of pullback and we need to look at how October came in so strong,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee. “It cannot always be going full throttle. Things need to ease up at times or it will overheat. We would rather see incremental growth, and going month to month we are still reflecting growth. Indications from our respondents and our recent semiannual report are that things are positive.”

Among the drivers for that sentiment, he said, were a business-friendly economic environment and global economic synchronization in terms of growth, adding that 2018 will likely match or exceed 2017’s NMI levels.

When asked what led both new orders and business activity/production to each drop by more than 4% in December, Nieves pointed to the buildup heading into the holiday season, as well as a fall-off in activity, with things easing off at a faster clip than in the past, and also coming off of a very high rate of growth.

“We had such a strong few months there from August through October…it just had to ease, as it was not sustainable,” he explained.

 

Looking at 2018, Nieves said he expects growth to be gradual in January, with February likely to be stronger, as is historically has been on a seasonal basis. 

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

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