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First Cut: Government shutdown weighed on ISM Non-Manufacturing Index in January

The ISM Non-Manufacturing Index for January dipped to 56.7 from 58.0 in December. Although the situation was not universal, many survey respondents noted that the partial federal government shutdown had an impact on business in the form of delayed payments and contract negotiations that exacerbated existing concerns about slower economic activity going into 2019. The impact of tariffs and trade policy – past and future – are also weighing on service sector activity.

The index components showed a modest decline in business activity (59.7 in January versus 61.2 in December), but it was the decline in new orders (57.7 versus 62.7) that dominated the lower overall reading. Employment actually rose (57.8 versus 56.6) while supplier deliveries were unchanged (51.5 in both months).

What may reflect the decline in new orders is a drop in export orders (50.5 in January versus 59.5 in December). If the near-neutral reading persists, it could mean that economic growth will be even more sluggish than previously forecast. However, this is more likely a pause after businesses moved to complete some activity before the possibility of higher tariff costs being imposed.

Prices paid rose slightly (59.4 in January versus 58.0 in December). There was an uptick in prices for commodities including a modest increase in motor fuels. However, there is not much indication of more than usual month-to-month variation.

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