|Composite Index - Level||56.7||46.5 to 58.5||56.5||56.9|
The factory sector may be soft right now but not the rest of the economy, based on a very strong PMI services report posted earlier this morning and now the ISM non-manufacturing report where the headline index is at a very healthy 56.5. Strength in new orders, at 57.8, is a key plus in the report as is growth in backlog orders, at 53.5 which is relatively strong for this reading. Employment, at 56.6, is very strong and at a 5-month high.
Breadth of strength is especially encouraging with 14 of 18 industries reporting composite growth in the month led by management services at the top and even including construction which, though the slowest of the 14, is still in the plus column. The 4 industries in the negative column include mining and also education.
Weakness in foreign demand for US goods, the result in part of the strong dollar, is increasing focus on the non-manufacturing economy and the ability of the US consumer to keep up the nation's economic growth. Right now, with employment trends solid, consumers appear to be doing their share.
Market Consensus Before Announcement
The composite index from the ISM non-manufacturing survey for February was up 2 tenths to 56.9. Employment was a stand-out positive, jumping nearly 5 points to a 4-month high of 56.4. Not so strong were new orders where growth is down nearly 3 points to 56.7 for the lowest reading since March last year. Nevertheless, this is still a very healthy and sustainable rate of growth.
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.