Non-manufacturing gets off to a strong start in 2018, reports ISM

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Non-manufacturing came out of the gate strong to kick off 2018, according the the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business, which was released today.

The index ISM uses to measure non-manufacturing growth—known as the NMI––headed up 3.9% to 59.9 (a reading above 50 indicates growth) in January to a new all-time high. This reading indicates non-manufacturing growth has now been intact for 96 consecutive months, with the overall economy growing for the 101st consecutive month. January’s NMI is up 2.7% compared to the 12-month average of 57.2. And the rolling three-month average of 57.7 is up 0.5% compared to the 12-month average.

ISM said that 15 non-manufacturing industries reported growth in January, including: Management of Companies & Support Services; Arts, Entertainment & Recreation; Mining; Utilities; Retail Trade; Construction; Transportation & Warehousing; Public Administration; Real Estate, Rental & Leasing; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Educational Services; Finance & Insurance; Wholesale Trade; and Accommodation & Food Services. The three industries reporting contraction in January are: Information; Other Services; and Professional, Scientific & Technical Services.

The report’s key metrics, including the NMI, were up in February, including

  • business activity/production up 2% to 59.9 and growing for the 102nd month in a row;
  • new orders up 8.2%, growing for the 84th consecutive month;
  • employment up 5.3% to 61.6 and growing for the 47th consecutive month, which also marks a new all-time high; and
  • prices up 2% to 61.9, growing for the 23rd consecutive month

“This was a really strong start to the year,” said said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “It is a combination of a few different things like the tax plan. There is also synchronized global economic expansion and a confidence about the economy. Another factor of the decreasing value of the dollar, which is good for exports going up, as well as helping the global economy, which is, in turn, helping the domestic economy.”

With the economy and non-manufacturing, specifically, off to a better-than-expected start to the year, Nieves said there is some concern that with the economy in a good place that things don’t overheat.

“This leads to the question of if things are sustainable,” he noted. “There is a possibility that they are probably not, but I still think there will be strong growth reflected in the upcoming months based on where the new orders index came in.”

Typically to start the year, Nieves said non-manufacturing activity is average in January, with things starting to heat up in February, but with confidence where it is, coupled with more companies moving forward with capital expenditures plans, it shows they are moving forward and spending at a faster rate.

Even though non-manufacturing is in a good place, Nieves said inflation is an area of concern moving forward, especially on the heels of last Friday’s jobs report as it relates to wage increases and low unemployment numbers, which, he, said, could force the Federal Reserve to raise interest rates down the road. But he said that should this happen, inflation gains would likely be moderate and not severe.

Another thing to keep an eye on, he said, is inventory levels. Non-manufacturing inventories slipped 4.5% to 49 in January.

“This was due to replenishment not happening right away, with things gearing down for year-end, so we anticipate that number to be up in February,” he sai

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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