January’s Non-Manufacturing Index Report

According to a report released Wednesday by the Institute of Supply Management, the Non-Manufacturing Index [NMI] registered 42.9% in January, 2.8 percentage points higher than the seasonally adjusted 40.1% registered in December. While the January number continues to indicate contraction in the non-manufacturing sector for the fourth consecutive month, the new NMI figure shows a slightly slower receding rate in economic activity. Still, NMI continues to stand well below 50 and thus back expectations for negative growth.

As manufacturing activity and consumption have both sharply deteriorated in recent months ; a persisting weakening pattern in non-manufacturing confidence shouldn’t come as a surprise. Businesses and households continue to reduce their demand and spending in line with tight credit conditions causing revenues to shrink, thus negatively affecting non-manufacturing activity.

Details of the NMI January report show that Business Activity Index registered 44.2% in January when compared to the seasonally adjusted 38.9% registered in December, an increase of 5.3 percentage points on a m/m basis.

• January New Orders Index came in at 41.6% from December’s seasonally adjusted 38.9% ; an increase of 2.7 percentage points.

• The employment index weakened further in January, registering 34.4%. This reflects a decrease of 0.1 percentage point when compared to the seasonally adjusted 34.5% registered in December. Based on today’s report employment activity in the non-manufacturing sector has contracted for the 12th time in the last 13 months.

• Supplier deliveries were slower in January as well, with the index registering 51.5%.

• Inventory levels contracted in January for the fifth consecutive month, showing the inventories index at 41.5%. The industries that reported increases in inventories were : Mining; Finance & Insurance; Professional, Scientific & Technical Services; and Information.

• ISM’s Non-Manufacturing Prices Index for January registered 42.5%, 6.4 percentage points higher than December’s seasonally adjusted index of 36.%.

• Backlog of Orders Index contracted in January for the sixth consecutive month. The index registered 37.5%, 5 percentage points lower than the 42.5% reported in December.

• The New Export Orders Index for January registered 39%. This is a decrease of 0.5 percentage point from December’s index of 39.5%. Meanwhile, Imports Index registered 40.5%, 8 percentage points higher than December’s index of 32.5%.

The overall tone of today’s report continues to suggest an ongoing recessionary economic climate.