Sunday, 26 of March of 2017

Economics. Explained.  

Category » Purchasing Managers Index

Purchasing Managers Index — Nonmanufacturing

March 3, 2017

NAPM -- Nonmfg.

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 index rose 3.3 points in February from 60.3 to 63.6.  That is  the highest level since October 2015.   At its February level the ISM group estimates GDP growth of 3.4%.

Anthony Nieves, the chair of the ISM Non-Manufacturing Business Survey Committee said, “The non-manufacturing sector reflected strong growth in February after cooling off in January. Respondents’ comments continue to be mixed, with some uncertainty; however, the majority indicate a positive outlook on business conditions and the overall economy.”

The orders component  rose 2.6 points from 58.6 to 61.2.  This series remains quite high and suggests that the service sector will continue to grow briskly for some time to come.  Comments from respondents include: “New clients on board” and “Spending new budgets.”

NAPM -- Nonmfg Orders

The ISM non-manufacturing index for employment rose 0.5 point in February to 55.2.  Jobs growth should continue in upcoming months at about the same pace we  have seen of roughly 170 thousand per month. Comments from respondents include: “Adding new positions to meet the demands of new business” and “Hiring freeze that we had last month was lifted in certain areas.”

NAPM -- Nonfmg Employ.

Finally,  the price component fell 1.3 points in February to 57.7.  Thus, prices still rose in February but at a slightly slower pace than in January.  Thirteen of the 14 industries surveyed reported higher prices in February.  Higher inflation lies ahead.

NAPM -- Nonmfg Prices

Stephen Slifer


Charleston, SC

Purchasing Manager’s Index

March 1, 2017


The Institute for Supply Management’s index of conditions in the manufacturing sector rose 1.7 points in February after having risen 1.5 points in January.  That is sixth consecutive increase and lifts the index to its highest level in more than two years (Augusts 2014).  Clearly manufacturing activity is beginning a slow but gradual recovery.  If the PMI for February is annualized it corresponds to a 4.5% increase in GDP growth.  If one uses the January/February average PMI it would imply a 4.3% increase in GDP growth this year.

It is important to recognize that the overall index is the compilation of a number of different components — production, orders, employment, supplier deliveries, inventories, prices, the backlog of orders, exports, and imports.

The orders component jumped 4.7 points in February to 65.1 rose 0.2 point in January.  This series has risen 13 points in the past four months and is the highest since December 2013.  It appears that orders have really begun to accelerate which will boost factory production in the months ahead.

NAPM -- Orders

In addition to orders, actual production has behaved in a similar manner.  Thus, the pace of production has already begun to climb and given the rise in orders it should gather momentum as we move throughout 2017.  The production index climbed 1.5 points in February to 62.9.

NAPM -- Production

The employment index declined 1.9 points in February to 55.0 after having risen 3.3 points in January.   That is not a particular high level, but it signals that factory employment has begun to rise after a long period of stagnation.  The employment index had been right about at the break-even point of 50.0 for almost a year but has now broken out to the upside in the  past four months. While the economy is currently cranking out about 170 thousand jobs per month, the factory sector thus far has produced few of them.  The jobs are coming from services and construction.  Hopefully, 2017 will bring with it at least some moderate increases in factory jobs.

NAPM -- Employment

The backlog of orders surged 7.5 points in February to 57.0.  The backlog had been  fairly steady for a long while, but now orders are rising and the backlog has begun to climb which will encourage still faster production in the months ahead..

NAPM -- Backlog of Orders

The prices paid component fell 1.0 points in February to 68.0 after having risen 3.5 points in January.  Survey respondents reported that prices rose for 17 of the 18 manufacturing prices surveyed so the run-up in commodity prices is widespread and not just oil .  This is an important development.  Prices had been falling steadily  since October 2014 (when oil prices began to fall) which pulled down the CPI and PPI measures of inflation.  Now that process has clearly come to an end and will result in somewhat faster inflation readings in the months ahead.

NAPM -- Prices

We believe that the economy is  expanding at a moderate pace.  We expect GDP growth of 2.4% in 2017 and 2.7% in 2018.  During that period of time the manufacturing sector will once again begin to expand slowly.

Stephen Slifer


Charleston, SC