Tuesday, 22 of January of 2019

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Category » Purchasing Managers Index

Purchasing Managers Index — Nonmanufacturing

January 7, 2019

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 fell 5.3 points in December to 59.9 after having risen 2.7 points in November as stock market volatility, tariffs, and weakness overseas (most notably in China) appear to have taken a toll.   However the decline is from the November level of 65.2 which was was the highest level for this index since January 2004.  In December, 16 of 18 service-sector  industries  reported expansion.  Still good, solid, broad-based growth continues at a relatively high level.  At its December level the non-manufacturing index equates to GDP growth of 3.2%.

Typically, large changes in the overall index are led by orders but, in this case, the orders component for December rose 0.2 point to 62.7 after having climbed 1.0 point in November.  Orders continued to flow in at a solid pace in December.  February (at 64.8) was the strongest month for orders since August 2005.

The ISM non-manufacturing index for employment fell 2.1 points in December to 56.3 after having declined 1.3 points in November.   The September level of 62.4 was the highest level thus far in the business cycle.  Jobs growth should continue in upcoming months at about the same pace we  have seen of roughly 190 thousand per month.

Finally,  the price component declined 6.7 points in December to 57.6 after having risen 2.6 points in November.   Prices continued to climb in December, but at a slower pace than in other recent  months.

Stephen Slifer


Charleston, SC

Purchasing Manager’s Index

January 3, 2019

The Institute for Supply Management’s index of conditions in the manufacturing sector fell 5.2 points in December to 54.1 after having risen 1.6 points in November.   Clearly the stock market decline, combined with slower growth from China and continuing concern about tariffs, is making manufacturers nervous.  But before one gets too negative, if the PMI for December is annualized it corresponds to a 3.4% increase in GDP growth.

Timothy R. Fiore,  Chair of the ISM’s Manufacturing Business Survey Committee indicated that “Comments from the panel reflect continued expanding business strength, but at much lower levels.”

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 fell 11 points in December to 51.1 after having risen 4.7 points in November.  Customer demand softened quite notably in December as stock market volatility, slower growth in China and concern about tariffs took a toll..  An orders index above 52.4  is, over time, consistent with an increase in the Census Bureau’s series on factory orders.

In addition to orders, the production component fell 6.3 points in December to 54.3 after having risen 0.7 point in November.    A level above 51.5 is consistent with an increase in the Federal Reserve’s industrial production figure.  The ISM reported noted that, ““Production expansion continued in December but at a slower pace than in other recent months.”

The employment index declined 2.2 points in December to 56.2 after having risen 1.6 points in November.  The ISM report said the following:  “Employment continued to expand, supporting production growth, but at the lowest expansion level since June 2018, when the index registered 56 percent,” While the economy is currently cranking out about 190 thousand jobs per month, the factory sector thus far accounts for only about 20 thousand of them.  Most of the jobs are coming from services and construction.  An ISM employment index above 50.8 is consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.

The backlog of orders plunged 6.4 points in December to 50.0 after having risen 0.6 point in November. Backlogs did not grow during December, with only three of the big six industries recording expansion.”

The prices paid component declined 5.8 points in December to 54.9 after having fallen  10.9 points in November.  The May level of 79.5 was the highest reading for prices since April 2011 when it was 85.5.   ISM officials noted that ““The price increases across all industry sectors continue, but at sharply lower levels compared to prior months.”  This is the lowest month of price expansion since June 2017, when the index registered 53 points.    Eight industries reported paying higher prices for raw materials in December versus five said that they were paying reduced prices.  A price index level above 52.4 is consistent with an increase in the BLS producer prices index for intermediate materials.

We believe that the economy is  expanding at a relatively robust pace.  We expect GDP growth 3.1% in 2018 and 2.8% in 2019.  During that period of time the manufacturing sector will continue to expand at a moderate pace.

Stephen Slifer


Charleston, SC