US: ISM Non-Mfg Index

Thu Dec 03 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
Composite Index - Level 58.2 57.0 to 59.1 55.9 59.1

Strength in ISM's non-manufacturing sample is cooling but remains very solid, at 55.9 in November which is, however, the lowest rate of monthly growth since May. Readings across the report have also edged down to growth levels last seen in the second quarter including new orders (57.5), backlog orders (51.5), and employment (55.5). New export orders, at 49.5, show their first contraction since April. The breadth of strength across industries, with 12 showing growth and six in contraction, is positive but, like most of this report, less positive than prior months. Still, this report surged through the third quarter and into October making a step down to a lower rate no major surprise.

Market Consensus Before Announcement
The ISM non-manufacturing index has been running at very strong rates of growth, strength however that stands in contrast to generally moderate rates of growth for the economy. The Econoday consensus is calling for 58.2 in November, in what would be only a small step back from October's 59.1 when order readings were unusually strong across the board.

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.