ISM Non-Manufacturing: Slowest Growth Since January 2010
Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 51.6 percent, down from last month's 54.0 percent. Today's number came in below the Investing.com forecast of 53.5, which was also the consensus at Briefing.com. The latest data point is the lowest since the January 2010 beginning of sustained expansion following the Great Recession.
Here is the report summary:
"The NMIŽ registered 51.6 percent in February, 2.4 percentage points lower than January's reading of 54 percent. The Non-Manufacturing Business Activity Index decreased to 54.6 percent, which is 1.7 percentage points lower than the reading of 56.3 percent reported in January, reflecting growth for the 55th consecutive month and at a slower rate. The New Orders Index registered 51.3 percent, 0.4 percentage point higher than the reading of 50.9 percent registered in January. The Employment Index decreased 8.9 percentage points to 47.5 percent from the January reading of 56.4 percent and indicates contraction in employment for the first time after 25 consecutive months of growth. The Prices Index decreased 3.4 percentage points from the January reading of 57.1 percent to 53.7 percent, indicating prices increased at a slower rate in February when compared to January. According to the NMIŽ, ten non-manufacturing industries reported growth in February. The majority of respondents' comments indicate a slowing in the rate of growth month over month of business activity. Some of the respondents attribute this to weather conditions. Overall respondents' comments reflect cautiousness regarding business conditions and the economy."
Like its much older kin, the ISM Manufacturing Series, I have been reluctant to focus on this collection of diffusion indexes. For one thing, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.
In my view, the more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 54.6 percent is a 1.7 decline from the previous month.
For a diffusion index, this can be an extremely volatile indicator. Thus I've added a six-month moving average to assist us in visualizing the trend, which has been relatively range bound for the past two years.
Theoretically, I believe, this indicator will become more useful as the timeframe of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains my intention to keep this series on the radar.
Here is a table showing trend in the underlying components.
Here is a link to my coverage of ISM Manufacturing report released earlier this week.
Note: I use the FRED USRECP series (Peak through the Period preceding the Trough) to highlight the recessions in the charts above. For example, the NBER dates the last cycle peak as December 2007, the trough as June 2009 and the duration as 18 months. The USRECP series thus flags December 2007 as the start of the recession and May 2009 as the last month of the recession, giving us the 18-month duration. The dot for the last recession in the charts above are thus for November 2007. The "Peak through the Period preceding the Trough" series is the one FRED uses in its monthly charts, as illustrated here.