US: ISM Non-Mfg Index

Tue Jan 06 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
Composite Index - Level 58.0 57.0 to 59.0 56.2 59.3

December growth in ISM's non-manufacturing sample, at 56.2, slowed substantially from, however, November's unusually strong 59.3.

Details show particular slowing in business activity, down 7.2 points to 57.2, followed by slowing in new orders, down 2.5 points to 58.9. A plus is respectable strength for employment, down only 7 tenths to 56.0. Prices paid, reflecting lower fuel costs, fell 4.9 points to 49.5 for the first sub-50 reading since September 2009.

Despite the slowing, signals from this report are still very healthy, underscored by the breadth of strength among individual industries with 12 of 18 reporting monthly growth. The two leading industries for December - retail and accommodation & food services - point specifically to consumer strength during the holidays. Other readings include a gain for construction and monthly contraction for mining.

Market Consensus Before Announcement
The composite index from the ISM non-manufacturing survey for November reported very solid conditions, at a composite 59.3 versus 57.1 in October. Aside from August's 59.6, November was a recovery high going back more than 9 years. New orders were very strong, up 2.3 points in the month to 61.4 with backlog orders up 4.0 points to 55.5 in a reading last matched in April 2011.

The non-manufacturing ISM surveys more than 375 firms from numerous sectors across the United States. This index covers services, construction, mining, agriculture, forestry, and fishing and hunting. The non-manufacturing composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the non-manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation. A reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries. However, slower deliveries are a plus for the economyindicating demand is up and vendors are not able to fill orders as quickly.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM non-manufacturing survey's composite index, investors will know what the economic backdrop is for the various markets. The non-manufacturing composite index has four equally weighted components: business activity, new orders, employment, and supplier deliveries. The ISM did not begin publishing the composite index until the release for January 2008. Prior to 2008, markets focused on the business activity index. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. While the ISM manufacturing index has a long history that dates to the 1940s, this relatively new report goes back to 1997.