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ISM Non Manufacturing: Slight Miss But Holds Near 1-year High

February 3, 2017

Bottom Line: The ISM survey of business activity in the services, construction, and government sectors of the economy decelerated slightly in January but remained near its highs of the last year. The prices paid component of the survey rose sharply -- now at a two-year high. With the impact of the election still mostly only visible in the soft/survey data rather than the hard data, the anecdotal aspects of this report are particularly notable. Unlike the resolutely positive statements we saw in the manufacturing survey, purchasing managers in the services sectors are more cautious and reveal greater uncertainty about potential changes in their businesses due to policy changes. Health care and professional/tech services managers reported greater uncertainty while wholesale traders expressed more confident optimism.

The ISM Non-Manufacturing Index FELL by 0.1 points in January to 56.5%, compared with market expectations for a small increase to 57.0%. The January reading was slightly higher than its average level over the past 12 months. That said, the current level of the index indicates that the economy is growing moderately.

New Orders fell by -2.1 points to 58.6%. Order Backlogs increased modestly but. Inventories declined slightly. Employment grew by 2.0 points to 54.7% , indicating that upcoming employment report will likely be higher than last month's print.

Prices increased by 2.9 points to 59.0%.

Quotes from Survey:

"Demand is relatively flat; down about 2 percent from December to January." (Agriculture, Forestry, Fishing & Hunting)

"Strong second half. Exceeded 2016 revenue and earning targets. Q1 [is] looking strong so far. Cautiously optimistic for 2017." (Finance & Insurance)

"Current conditions stable. Uncertainty with Trump presidency and how it is going to impact health care." (Health Care & Social Assistance)

"The overall outlook from our perspective is that we are seeing an uptick in activities, both in the energy sector and the construction side of our business." (Mining)

"Market conditions are good with lower prices on most animal proteins, grains, and dairy prices. Butter still uncertain with increased demand [for] natural fats." (Accommodation & Food Services)

"A lot of activity to start the year. Companies reassessing their contracts and looking for savings whenever they can get it." (Professional, Scientific & Technical Services)

"The outlook for future business has improved, but there is still a degree of uncertainty regarding how the new administration will execute." (Public Administration)

"Continued optimism concerning the business environment in the near term." (Management of Companies & Support Services)

"Year-over-year for this period, we are down slightly, but that is primarily due to the mild winter we are experiencing. Outlook for upcoming season is very positive." (Wholesale Trade)

Article by Contingent Macro Advisors