– December 4, 2019
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The Institute for Supply Management’s nonmanufacturing composite index fell to a reading of 53.9 from 54.7 in October (see top chart). For this index, 50 is neutral, with readings above 50 suggesting expansion for the sector and readings below 50 suggesting contraction. The November result is the 118th consecutive month above 50 suggesting expansion for the services sector.

Historically, readings above 48.6 have suggested expansion of the overall economy and November was the 123rd consecutive month above 48.6. The results are a distinct contrast to the ISM Manufacturing Purchasing Managers’ Index, which remained below 50 for the fourth consecutive month in November.

Among the key components of the nonmanufacturing index, the business-activity index (comparable to the production index in the ISM manufacturing report) was 51.6 in November, down sharply from 57.0 in October and the weakest reading since November 2009, just after the Great Recession (see top chart). For the latest month, nine industries in the nonmanufacturing survey reported growth while seven reported contraction.

The nonmanufacturing new-orders index came in at 57.1, up from 55.6 in October (see bottom chart). November was the 124th consecutive month with readings above 50. The new orders index was one of five survey indexes to show an improvement for the month versus three declines and two unchanged.

The new-export-orders index, a separate index that measures only orders for export, was 52.0 in November following a neutral 50 result in October. The improvement is a welcome development but the near-neutral result is consistent with slowing global economic activity and deteriorating trade relations.

The nonmanufacturing employment index increased to 55.5 in November from 53.7 in October. The improved reading contrasts with the weak result of the ADP private-payroll employment estimate released earlier today that predicted a weak 67,000 gain in private payrolls for November. The November jobs report from the Bureau of Labor Statistics is due out on Friday November 6th. The consensus estimate is for a gain of 180,000 new jobs with 175,000 coming from the private sector.

Supplier deliveries, a measure of delivery times for suppliers to non-manufacturers, came in at 51.5, down from 52.5 in October. It suggests suppliers are falling further behind in delivering supplies to non-manufacturers but the slippage has decelerated a bit from the prior month.

The price index rose to 58.5 from 56.6 in the prior month suggesting continued input cost pressures. Among the industries in the survey, 10 indicated an increase in prices paid while four reported lower prices. Some of the price pressure is likely due to escalating tariffs.

Today’s report from the Institute of Supply Management suggests that growth decelerated in the nonmanufacturing sector in November, extending a downward trend in the index over the past year or so. Still, the services-sector continues to expand in sharp contrast to the manufacturing sector which, according to the ISM manufacturing survey, has contracted for the past four months. However, the mixed results of the nonmanufacturing survey and near-neutral level of the composite nonmanufacturing index perpetuates doubts about the strength of the economy, and when considered along with the weak results from the ADP employment estimate, suggests continued caution regarding the economic outlook.

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Robert Hughes

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Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
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