US: ISM Non-Mfg Index

February 3, 2017 09:00 CST

Consensus Consensus Range Actual Previous Revised
Composite Index - Level 57.0 56.2 to 58.5 56.5 57.2 56.6

Keeping with the morning's theme of strength, the ISM non-manufacturing index came in steady at 56.5 with new orders at an even stronger 58.6 and with business activity leading the report at 60.3. Employment, like this morning's jobs report, is solid at 54.7 for a 2-point gain in the month.

But backlog orders, despite the strength in new orders, remain flat which will contain future employment gains. Another negative is new export orders which had been strong reflecting foreign demand for U.S. technical and managerial services but which fell into contraction in January at 48.0.

The bulk of the data, however, is very strong, starting off 2017 on the same note of strength that the report showed throughout 2016.

Market Consensus Before Announcement
The ISM non-manufacturing index, at a very strong 57.2 in both December and November, has been pointing to acceleration for the bulk of the U.S. economy. New orders led December's report at 61.6 which points to strong activity through the January report. The Econoday consensus for January is 57.1.

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.