ISM Service Sector Index (NMI) Heats Back Up in January

The Institute for Supply Management (ISM) Non-Manufacturing Index (NMI) heated back up to 59.9 in January, a gain from 56 the previous month and much stronger than the 56.2 median forecast.

The NMI had been showing a welcomed cooling, moving down from the 60s in October to what was a lower-than-expected 56.0 in December (revised from an initial 55.9). But most readings were still in the mid-50s and indicate solid monthly growth.

“The non-manufacturing sector reflected strong growth in January after two consecutive months of pullback,” Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee said. “Overall, the majority of respondents’ comments are positive about business conditions and the economy. They also indicated that recent tax changes have had a positive impact on their respective businesses.”

The Non-Manufacturing Business Activity Index increased to 59.8%, 2 percentage points higher than the seasonally adjusted December reading of 57.8%. That marks the 102nd consecutive month of growth, which came at a faster rate in January. The New Orders Index came in at 62.7%, 8.2 percentage points higher than the seasonally adjusted reading of 54.5% in December.

The Employment Index increased 5.3 percentage points in January to 61.6% from the seasonally adjusted December reading of 56.3%. The Prices Index increased by 2 percentage points from the seasonally adjusted December reading of 59.9% to 61.9%. That marks the 23rd consecutive month prices increased.

PANEL RESPONSES

• “Executive management [is] excited about tax breaks for CapEx purchases in [the] new tax bill.” (Information)
• “Month-over-month steady growth, on average, [is] 3 percent on project volume and 1 percent on total revenue.” (Construction)
• “Signs of strong growth [in] financial performance expectations given the recent tax changes.” (Finance & Insurance)
• “Positive outlook for 2018. We see huge pricing pressure.” (Health Care & Social Assistance)
• “Business is starting off solid.” (Accommodation & Food Services)
• “First quarter begins slow like 2017, but expect things to pick up later in Q1. Outlook continues to look bright for 2018.” (Professional, Scientific & Technical Services)
• “Business activity is low due to the continued partial funding [of] bills passed (continuing resolutions).” (Public Administration)
• “Overall, sales velocity looks strong. Some regional differences due to weather conditions, but overall, a strong month.” (Wholesale Trade)

The 15 non-manufacturing industries reporting growth in January — listed in order — are: Management of Companies & Support Services; Arts, Entertainment & Recreation; Mining; Utilities; Retail Trade; Construction; Transportation & Warehousing; Public Administration; Real Estate, Rental & Leasing; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Educational Services; Finance & Insurance; Wholesale Trade; and Accommodation & Food Services.

The three industries reporting contraction in January are: Information; Other Services; and Professional, Scientific & Technical Services.