November 2014 ISM Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that economic activity in the U.S. manufacturing sector expanded at roughly the same pace in November as it had in October. The PMI edged down to 58.7%, a decrease of 0.3 percentage point from October’s 59.0% (50% is the breakpoint between contraction and expansion). ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. The expansion was supported by increased new and backlogged orders, imports and exports, and slower supplier delivery times (implying suppliers may be having difficulty keeping up with orders).

Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee said comments from the respondent panel “are upbeat about strong demand and new orders, with some expressing concerns about West Coast port slowdowns and the threat of a potential dock strike.” 

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Wood Products was unchanged again in November, as increased export orders were offset by declines in backlogged orders; the “market has remained strong going into year-end,” one respondent indicated, however. Paper Products’ expansion, by contrast, exhibited widespread support among the sub-indices. 

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- quickened in November, nearly recapturing the high set back in August. The NMI registered 59.3%, 2.2 percentage points above October’s 57.1%; only the employment and imports sub-indices were lower in November than in October. “Comments from the majority of respondents indicate that business conditions are on track for continued growth,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. “The respondents have also stated that there is some strain on capacity due to the month-over-month increase in activity.” 

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Two of the three service industries we track (Construction and Ag & Forestry) reported expansion in November. Apparently the increases in imports and backlogged orders were not enough to move Real Estate’s overall activity “meter.”

Paper products was the only relevant commodity up in price. Some respondents indicated paying more for gasoline, others less. Lumber and diesel were down in price. No relevant commodities were in short supply.

It is interesting to note that while ISM’s PMI and Markit’s U.S. Manufacturing PMI paralleled each other in November (i.e., both showed slower expansion), ISM’s NMI and Markit’s U.S. Services PMI moved in opposite directions (i.e., ISM expanded more quickly, Markit more slowly).

Although ISM’s reports are useful as attitudinal barometers, they should not be substituted for “hard” data. For example, ISM has reported Paper Products expanded during 22 of the past 24 months. That does not square with Federal Reserve data, which shows paper industrial production 2.1% and capacity 3.6% lower than in November 2012. ISM’s results for Wood Products (expansion during 16 of 24 months) are consistent with Fed data (IP: +17.0%; capacity: +4.0%), however.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.