The January 2013 ISM Non-manufacturing report shows the overall index decreased, -0.5 percentage points, to 55.2%. The NMI is also referred to as the services index and the decline indicates slower growth for the service sector. The index also shows more inventory contraction. For those believing the Q4 GDP inventory shed was just temporary should read on.
The comments from survey respondents can be described as upbeat, although not enthusiastically so. New orders decreased -3.9 percentage points, business activity dropped -4.4 percentage points and new export orders popped back up by 6.0 percentage points. Anything below 50% shows contraction for the non-manufacturing index. Below is a copy of the ISM services table, abbreviated.
|ISM NON-MANUFACTURING SURVEY - JANUARY 2013|
|Supplier Deliveries||52.5||48.5||+4.0||Slowing||From Faster||1|
|Backlog of Orders||49.0||49.5||-0.5||Contracting||Faster||2|
|New Export Orders||55.5||49.5||+6.0||Growing||From Contracting||1|
|Inventory Sentiment||64.0||58.0||+6.0||Too High||Faster||188|
Below is the graph for the non-manufacturing ISM business activity index, or current conditions, what we're doin' now meter. Business activity decreased -4.4 percentage points to 56.4%. Here is the ISM's ordered services sector business activity list:
The industries reporting growth of business activity in June — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Mining; Construction; Management of Companies & Support Services; Public Administration; Finance & Insurance; Accommodation & Food Services; Information; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The industries reporting decreased business activity in January — listed in order — are: Utilities; Educational Services; Other Services; Wholesale Trade; Transportation & Warehousing; and Retail Trade
New orders decreased, -3.9 percentage points to 54.4%. Generally 50% is the inflection point between expansion and contraction. New orders are an indicator of future business activity. Other Services topped the list for contraction followed by Educational Services.
Inventories decreased another -3.0 percentage points to 47 %. Some of the comments by survey respondents do not bode well for a tempoary reduction. Quoted by the ISM were: "Deliberate reduction of inventory" and "Holding levels tight." Below is the ordered list of those increasing their inventories to those who are reducing them.
The seven industries reporting an increase in inventories in January — listed in order — are: Mining; Agriculture, Forestry, Fishing & Hunting; Utilities; Real Estate, Rental & Leasing; Health Care & Social Assistance; Retail Trade; and Public Administration. The nine industries reporting decreases in inventories in January — listed in order — are: Other Services; Arts, Entertainment & Recreation; Transportation & Warehousing; Information; Professional, Scientific & Technical Services; Accommodation & Food Services; Management of Companies & Support Services; Wholesale Trade; and Construction.
The employment index increased 2.2 percentage points to 57.5%. Anything below 50 means contraction or in the case of workers, firing people. Employment lags business activity and news orders, so we expect not such hot indexes in the next couple of months. The below graph has been normalized to 50, the ISM inflection point for expansion versus contraction.
New export orders increased 6.0 percentage points to 55.5% and moved from contracting to growing. New export orders are from outside the United States, but to be performed by domestically sourced workers. Notice how U.S. citizen/perm. resident labor is not part of this definition. Mining, is at the top of the expansion list, but 66% of survey participants do not take in overseas orders, or don't separate them out from all of their new orders.
Prices paid by the services sector increased 1.9 percentage points to 58 % and and is the 40th month in a row for increasing prices.
Order backlogs have shrank the last four of the past five months. January showed a -0.5 percentage point change to put the index at 49%, which is contraction. Not a good sign frankly, even thought 36% of those businesses surveyed don't track on order backlogs. Still, catching up with orders can imply additional slowing.
Below are supplier deliveries or vendor supplies and it's how fast businesses are getting their stuff to make more stuff. Above 50 is a slow down, which is opposite how many of these sub-indices are defined. Slow-downs mean more demand and also can limit the ability of that business to produce, or business activity. No stuff to make more stuff and you're stuck. This month the index increased 4.0 percentage points to 52.5%, so supplies are getting to the these businesses much slower than last month.
The use of imported materials increased 2.0 percentage points to 51.0%. While 62% of survey respondents do not track on their imports. At at the top of the list for import use increase were Public Administration and Information. Services imports includes BPO, or offshore outsourcing can sometimes be classified as indirect materials.
Below is the services sector ordered list reporting expansion vs. contraction overall:
The eight non-manufacturing industries reporting growth in January — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Construction; Public Administration; Finance & Insurance; Professional, Scientific & Technical Services; Real Estate, Rental & Leasing; and Mining. The nine industries reporting contraction in January — listed in order — are: Other Services; Arts, Entertainment & Recreation; Utilities; Educational Services; Transportation & Warehousing; Accommodation & Food Services; Retail Trade; Health Care & Social Assistance; and Wholesale Trade.
The NMI is made up of: Business Activity, New Orders, Employment and Supplier Deliveries, all equally weighted. Here is our past services index, overviews. You might also want to compare the services index to this month's ISM Manufacturing index.