NMI Cracks Appear

The non-manufacturing (services) ISM is still growing but prices and new export orders both plunged into contraction. Moreover, 8 out of 18 industries fell into outright contraction.

The Econoday Consensus Estimate was for a slight decline to 55.5 from 55.8 but once again economists were on the optimistic side. ISM reports a reading dip to 53.5. While still growing, this report portends significant, and growing weakness.

Monthly growth is slowing noticeably in ISM’s non-manufacturing sample. The composite index for January fell a sharp 2.3 points to 53.5 from December’s revised 55.8 which is 2 points below the Econoday consensus. Slowing is most apparent in output (as measured by the business activity component) with employment growth also slowing sharply, to 52.1 for a 4.2 point dip. However new orders, at 56.5, remain solidly above breakeven 50 though here to there is slowing, from December’s 58.9. Supplier deliveries, the fourth component of the composite, slowed in the month in a sign of congestion in the supply chain in what is an offsetting positive for the month.

Weakness is signaled by both contraction in import orders, which points to business caution among U.S. businesses, and also for export orders, the result of weak foreign markets and the negative effects of the strong dollar. Input prices, which have been subdued, fell in the month.

Through much of last year, this report was among the most resilient, consistently pointing to steady strength that for the most part proved correct. Today’s declines, along with the dip in the PMI services report released earlier this morning, unfortunately hint at soft growth for the first quarter while this report’s employment index, hitting its lowest point since January last year, points to modest disappointment for Friday’s employment report.

Let’s dive into the NMI Report for more details.

Non-Manufacturing NMI January vs. December

Index Jan Dec PP Change Direction Rate of Change Trend in Months
NMI® 53.5 55.8 -2.3 growing Slower 72
Business Activity / Production 53.9 59.5 -5.6 growing Slower 78
New Orders 56.5 58.9 -2.4 Growing Slower 78
Employment 52.1 56.3 -4.2 Growing Slower 23
Supplier Deliveries 51.5 48.5 3.0 Slowing From Faster 1
Inventories 51.5 53.0 -1.5 Growing Slower 10
Prices 46.4 51.0 -4.6 Decreasing From Increasing 1
Backlog of Orders 52.0 50.0 2.0 Growing From Unchanged 1
New Export Orders 45.5 53.5 -8.0 Contracting From Growing 1
Imports 46.0 49.0 -3.0 Contracting Faster 2
Inventory Sentiment 61.5 64.5 -3.0 Too High Slower 224

Growing Industries

  1. Finance & Insurance
  2. Real Estate, Rental & Leasing
  3. Utilities
  4. Retail Trade
  5. Information
  6. Construction
  7. Agriculture, Forestry, Fishing & Hunting
  8. Health Care & Social Assistance
  9. Management of Companies & Support Services
  10. Public Administration

Contracting Industries

  1. Mining
  2. Educational Services
  3. Wholesale Trade
  4. Other Services
  5. Arts, Entertainment & Recreation
  6. Accommodation & Food Services
  7. Transportation & Warehousing
  8. Professional, Scientific & Technical Services

Entertainment, as well as accommodation and food services are now in contraction. Food service has been a key provider of jobs.

Mike “Mish” Shedlock