US: ISM Non-Mfg Index

Wed Jan 06 09:00:00 CST 2016

Consensus Consensus Range Actual Previous
Composite Index - Level 56.2 55.2 to 57.0 55.3 55.9

There may be export-related weakness in the manufacturing sector but it has yet to spill over to the overall economy. ISM's non-manufacturing index did slow 6 tenths to 55.3 in December but the level is still very solid and details are positive. New orders are up 7 tenths to a very strong 58.2 while employment is also up 7 tenths, to 55.7. The sample is building up inventories which hints at expectations for solid business ahead. Another positive is the export index which, like the ISM manufacturing report issued Monday, bounced solidly higher and back into the plus-50 growth column, at 53.5. Input prices show very little change. This report continues to be consistent and solid, underscoring the strength of the nation's domestic-based economy.

Market Consensus Before Announcement
Pushing toward 60, the ISM non-manufacturing index had been running at very strong rates of growth before November's report when the index slowed substantially to 55.9 in what, however, is still a very solid reading and confirmation of strength in domestic demand. The Econoday consensus is looking for a slight bounce higher in December to 56.2.

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.