US: ISM Non-Mfg Index

Fri Jan 05 09:00:00 CST 2018

Consensus Consensus Range Actual Previous
Composite Index - Level 57.6 56.5 to 58.0 55.9 57.4

A little bit of cooling can be a good thing especially for a sample that has been reporting unusually strong and perhaps unsustainable strength. ISM's non-manufacturing index slowed by 1.5 points in December to a 55.9 level that misses Econoday's low estimate.

But the level is still very favorable with details led by a 1.0 point rise in employment to 56.3. New orders did slow a sharp 4.4 points but also remain well in plus-50 positive ground at 54.2 with new export orders strong at 56.5 and a reminder that service exports are a major positive for the U.S. economy. But backlog orders, at 50.0 exactly, were flat while business activity (which is a production reading) slowed by 4.1 points to 57.3.

The breakdown shows a very solid 14 of 17 industries reporting monthly growth led by retail which is hint of strength for December's retail sales report which comes out next week. Mining and construction, which are non-service industries that are tracked in this report, both posted monthly gains. The headline aside, this report is consistent with a strong year-end finish for the economy.

Market Consensus Before Announcement
The ISM non-manufacturing index cooled noticeably in November, falling 1.6 points to 57.4 and failing to meet low end expectations. Most readings eased by several points including new orders, backlog orders and employment. Still November's readings were very favorable as they have been all year. 57.6 is the Econoday consensus for December.

The Institute For Supply Management surveys more than 375 firms from numerous sectors across the United States for its non-manufacturing index. 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 economy -- indicating 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.