Non-manufacturing output dips but is still growing, reports ISM

The index ISM uses to measure non-manufacturing growth—known as the NMI– fell 3.6% to 56.1 (a reading of 50 or higher indicates growth is occurring) in March, following a 3% gain from January to February.

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While trending down compared to a very strong February, non-manufacturing activity in March still turned in a solid performance in March, according to the Non-Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).

The index ISM uses to measure non-manufacturing growth—known as the NMI– fell 3.6% to 56.1 (a reading of 50 or higher indicates growth is occurring) in March, following a 3% gain from January to February.

This reading represents the 110th consecutive month of NMI growth, with March’s NMI down 2.4% compared to the 12-month average of 58.5. The NMI for the first quarter is 57.5.

ISM reported that 16 of the 18 non-manufacturing sectors it tracks reported growth in March, including: Construction; Other Services; Professional, Scientific & Technical Services; Health Care & Social Assistance; Accommodation & Food Services; Public Administration; Mining; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Real Estate, Rental & Leasing; Information; Arts, Entertainment & Recreation; Utilities; Finance & Insurance; and Wholesale Trade. The two industries that contracted in March are: Educational Services; and Retail Trade.

The majority of the report’s key metrics, including the NMI, were down in March, including:
-business activity/production down 7.3% to 57.4, still growing for the 116th month in a row;
-new orders were off 6.2% to 59.0, still growing for the 116th consecutive month;
-employment was up 0.7% to 55.9, growing for the 61st consecutive month;
-supplier deliveries slowed to 52.0 (a reading above 50 indicates contraction), falling for the 39th consecutive month;
-prices increased 4.3% to 58.7 and showed growth for the 22nd consecutive month; and
-inventories dropped 1.0% to 50.0 and were flat over all

ISM member respondents noted in the report that different market impacts are having effects on their respective businesses. An accommodation and food services respondent noted that labor is tight and in short supply, and a management of companies and support services respondent pointed to a sense of relief in the industry with the temporary reprieve of the additional tariffs, which will help to maintain competitive prices and steady margins over the next quarter.

Tony Nieves, Chair of the ISM’s Non-Manufacturing Business Survey Committee, said in an interview that looking back to when the economy was first coming out of the recession, had there been slow incremental growth, that the current batch of ISM data would have been viewed as a strong level of growth.

“But because there was such a strong [NMI] reading last month, or rarified air, it is hard for it to be sustainable,” he said. “It was crazy to go from 64.7 for business activity/production, which had not been seen in a while to bit of a cooling off, even if it is still decent growth,” he said. “That bar, or benchmark, moves each month. In totality, I like the report, but if it had continued at the previous growth level, it would have redlined at some point…it is just a matter of when. The baseline is still moving in the right direction, it is just not as fast. It is not as much of a leveling off, as it is going to a growth path that is more sustainable over time. Any reading over 50 is good.”

The March pricing reading is consistent with no signs of inflation, according to Nieves, noting that the 4.3% increase from February to March is reflective of gains in the price of oil and gasoline.

And on the commodities side, he noted that the current state of the “trade war” is not impacting conditions to the level it once was, too, and has eased somewhat.

“If we see some type of trade resolution reached, it is going to further enhance the economy,” he said. “That is a positive thing, as well as the S&P bounce back, the government shutdown and the cold weather behind us, as well as employment heading up.”

While the percentage increase gain in employment was small, Nieves explained that that the current labor pool is not what it was, adding that has made it tougher for employers to fill some open positions, due to their skill sets not being applicable or a lack of resources, coupled with recruiters going after passive candidates and steering them from one company to another. On a more positive note, through, he noted there are some increased wage pressure and wage gains, which also bodes well for the economy. 

Nieves said the coming months look positive for non-manufacturing, with no clear signs of recession in sight, adding that expansion in the current business cycle has been long, especially when considering they typically last a little more than three years, whereas the current one has been much longer, due to slow and incremental growth over a long period.

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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