Wednesday, January 5, 2011

USA Non-Manufacturing Index Pops +2.1% in December (Chart) *At post-Great Recession high, 12th month of expansion*


USA Non-Manufacturing Index (NMI) by the Institute for Supply Management

USA Non-Manufacturing Index (NMI) Pops +2.1% in December

Official Statement by the Institute for Supply Management (Tempe, Arizona) - Economic activity in the non-manufacturing sector grew in December for the 12th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®. The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. "The NMI (Non-Manufacturing Index) registered 57.1 percent in December, 2.1 percentage points higher than the 55 percent registered in November, and indicating continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased 6.5 percentage points to 63.5 percent, reflecting growth for the 13th consecutive month at a faster rate than in November. The New Orders Index increased 5.3 percentage points to 63 percent, and the Employment Index decreased 2.2 percentage points to 50.5 percent, indicating growth in employment for the fourth consecutive month, but at a slower rate. The Prices Index increased 6.8 percentage points to 70 percent, indicating that prices increased significantly in December. According to the NMI, 14 non-manufacturing industries reported growth in December. Respondents' comments vary by company and industry, but overall are mostly positive about business conditions."

Industry Performance (Based on the NMI) "The 14 industries reporting growth in December based on the NMI composite index — listed in order — are: Real Estate, Rental & Leasing; Retail Trade; Information; Mining; Transportation & Warehousing; Professional, Scientific & Technical Services; Utilities; Finance & Insurance; Management of Companies & Support Services; Wholesale Trade; Arts, Entertainment & Recreation; Health Care & Social Assistance; Accommodation & Food Services; and Construction. The three industries reporting contraction in December are: Agriculture, Forestry, Fishing & Hunting; Educational Services; and Public Administration."

Cycle History The current ISM NMI is at a post-Great Recession cyclical high of 57.1, up +19.9 and +53.5% from the Great Recession cyclical low of 37.2 in November 2008, and the highest since May 2006. The NMI has now exceeded the previous post-Great Recession peaks of 55.4 in March, April, and May 2010. The NMI is a percentage - not a total. More about the NMI below the chart.

Trend The NMI had been trending downwards after the 3-month peak in March, April, and May 2010. Now the NMI has bounced up from the August low, increased 4 consecutive months, and is at a post-Great Recession peak. The NMI has been greater than 50, indicating USA non-manufacturing is expanding, since January 2010, for 12 consecutive months. The current NMI is above the steeply ascending 12-month moving average of 54.1 (The 12-month moving average chart is not shown on this page).

Non-Manufacturing Index (Chart) Below is a chart of the latest 17 months of the Non-Manufacturing Index (NMI) of the Institute for Supply Management (ISM) from August 2009 through the latest month reported, December 2010. As can be seen, the NMI was lowest, on this chart, in August 2009, at 48.2, and then ascended significantly to the cyclical peak in March at 55.4. The NMI then stayed at this level through April and May before descending to an August low of 51.5. The NMI has increased in each of the subsequent 4 months and now at a post-Great Recession cyclical peak.

Commentary This is yet another month of encouraging data as the upward trend signals continued expansion in the USA non-manufacturing (services) sector. The +2.1% jump from November is a large increase and expansion. Also encouraging is the 12 consecutive months of gains and the rate of increase is increasing for the 4th consecutive month. The related  ISM Manufacturing PMI for the USA also increased in December and is expanding, and is reviewed here [USA Manufacturing PMI Up in December! (Chart) *7-month high, 17th month of expansion*].

About The NMI

The ISM describes the NMI, the USA non-manufacturing (services sector) metric:

Level of the NMI A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. An NMI in excess of 42 percent, over a period of time, generally indicates an expansion of the overall economy

NMI Components The NMI is a composite of five indexes: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. 17 non-manufacturing industries are reported and represented in the NMI index: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Information; Other Services; Transportation & Warehousing; Public Administration; Mining; Health Care & Social Assistance; Educational Services; Wholesale Trade, Construction; Utilities; Accommodation & Food Services; and Finance & Insurance.

Non-Manufacturing Sector Plays a Significant Role in Economy The non-manufacturing sector currently makes up more than 80 percent of the gross domestic product (GDP). In addition to purchasing materials for production, manufacturing businesses also source for services from various non-manufacturing industries. Virtually every business is impacted by business activity in the non-manufacturing sector.

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*Data courtesy of the Institute for Supply Management*

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