February 5, 2020
The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of non-manufacturing firms — which largely consists of services. The business activity index climbed 3.9 points in January to 60;9 after having jumped 6.4 points in December. It has been very volatile as economic news produces rather dramatic monthly changes. While volatile on a monthly basis, this index has generally been in a range from 55.0 to 65.0 for the past several years. In January 12 service-sector industries reported expansion versus 6 industries that reported a decline. At its December level the non-manufacturing index equates to GDP growth of 2.4%.
Typically, large changes in the overall index are led by orders which, in this case, rose by 0.9 point to 56.2 after having fallen 1.8 points in December. At 56.2 this series points to solid growth in services in the months ahead although at a slightly slower pace than in November. Comments from respondents include: “New business growth with some increasing demand” and “Business expansion.”
The ISM non-manufacturing index for employment fell 1.7 points in January to 53.1 after having declined 0.7 point in December. Comments from respondents include: “Dramatic workforce shortage continues” and “Filling open positions due to new orders.”
Finally, the price component declined 3.8 points in January to 55.5 after having risen 0.8 point in December. Twelve non-manufacturing industries reported an increase in prices paid during the month compared to two who reported a decrease. At its current level of 55.5 prices are now rising at a moderate pace.
The manufacturing and non-manufacturing sectors of the economy have been going in totally opposite directions. The manufacturing sector was getting hit hard by the tariffs and Trump’s inconsistent tweets. However, the January report on the manufacturing sector is the first above 50.0 reading in almost a year. The much larger non-manufacturing (or service) sector is still cruising at a moderate pace.