Here is the report summary:
“The NMI® registered 55.3 percent in December, 0.6 percentage point lower than the November reading of 55.9 percent. This represents continued growth in the non-manufacturing sector at a slightly slower rate. The Non-Manufacturing Business Activity Index increased to 58.7 percent, which is 0.5 percentage point higher than the November reading of 58.2 percent, reflecting growth for the 77th consecutive month at a slightly faster rate. The New Orders Index registered 58.2 percent, 0.7 percentage point higher than the reading of 57.5 percent in November. The Employment Index increased 0.7 percentage point to 55.7 percent from the November reading of 55 percent and indicates growth for the 22nd consecutive month. The Prices Index decreased 0.6 percentage point from the November reading of 50.3 percent to 49.7 percent, indicating prices decreased in December for the third time in the last four months. According to the NMI®, 11 non-manufacturing industries reported growth in December. Faster deliveries in December contributed to the overall slight slowing in the rate of growth according to the NMI® composite index. All of the other component indexes increased in the month of December. The majority of respondents’ comments remain positive about business conditions and the overall economy.”
Unlike its much older kin, the ISM Manufacturing Series, 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.
The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 58.7 percent is up from 58.2 the previous month.
For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualizing the short-term trends.
Theoretically, this indicator should 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 our intention to keep this series on the radar.
Here is a table showing trend in the underlying components.
Note: We 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.
This article is brought to you courtesy of Jill Mislinski from Advisor Perspectives.