US: ISM Non-Mfg Index

Tue Dec 05 09:00:00 CST 2017

Consensus Consensus Range Actual Previous
Composite Index - Level 59.0 58.0 to 59.7 57.4 60.1

Growth cooled noticeably in ISM's non-manufacturing report with is probably a plus given unsustainably high levels in prior reports. At 57.4, November's composite score came in below the low end of expectations but is still however a very strong rate of growth.

Most readings eased by several points with new orders at 58.7, employment at 55.3, and backlog orders at 51.5. Export orders also eased, to 57.0. Delivery delays are improving which is a negative in the calculation of the composite with input price pressures easing slightly. Inventories rose but this is not a key factor as only about 1/5 of this sample even carries inventories.

One reading that held above the 60 threshold is business activity at 61.4 which is a reminder that the nation's output continues to expand at a solid rate. Yet the overall results, along with this morning's PMI services index, do point to slowing for the bulk of the economy in November and also fit in with slowing among several of the regional factory reports during the month. Note that today's ISM report tracks, unlike the PMI services, construction and mining which were mixed with the former expanding but the latter contracting in November.

Market Consensus Before Announcement
ISM non-manufacturing posted its best composite score of the expansion in October, at 60.1 for a peak last matched at the height of the prior expansion in 2004. New orders including export orders are unusually strong. Backlogs have been building and employment is at a 6-month high. Only limited slowing, to 59.0 from 60.1, is the Econoday consensus for November.

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.