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First Cut: ISM Non-Manufacturing Index puts service sector expanding for 119th straight month

The December ISM Non-Manufacturing Index was up to 55.0 after 53.9 in November. The index rested in the mid-50’s where it has been for most of 2019. Month-to-month variation should not obscure that service sector activity has managed to maintain a middling pace of growth in spite of slower economic conditions and uncertainties from trade policy. The ISM said the service sector expanded for a 119th straight month in December. Survey respondents indicated that in spite of some challenges, activity and the outlook for activity remains overall positive. This is in contract to the manufacturing sector where recessionary conditions have deepened.

Two of four index components were higher in December. Business activity rose to 57.2  for the month after dipping to 51.6 in November. The December reading probably was in line with the underlying trend for solid activity.

New orders remained expansionary, although the pace slowed a bit to 54.9 in December after 57.1 in November.  This should still be enough to smooth over any month-to-month variation even as backlogs continue to be worked down. The index for order backlogs — not a component of the Non-Manufacturing Index — slipped to 47.5 in December from 48.5 in November and have contracted for three months in a row. The export orders index — also not a component — decreased to 51.0 in December from 52.0 in the prior month. In spite of softness in global economic conditions, the index has not been below neutral since January 2017. The index for imports — another non-component — remained below neutral for a fourth month at 48.0 in December, although it improved from the 45.0 in the prior month.

The index for employment was little changed at 55.2 in December after 55.5 in November. Service sector businesses are hiring at a modest-to-moderate pace.

The supplier deliveries index widened a bit to 52.5 in December from 51.5 in November. There are no particular slowdowns in getting goods and services from vendors at present. A comment from a survey respondent indicated that delays — such as they are — are due to getting hard goods.

The index for inventories was up only slightly to 51.0 in December from 50.5. Service businesses have been tightly managing stocks on hand to ensure that unwanted inventories do not accumulate.

The index for prices paid was unchanged at 58.5 in December and remains about on trend with the second half of 2019 when energy prices remained overall low and upward pressure on input costs were generally well-contained.

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