U.S. ISM Non-Manufacturing Index (December 2019)

U.S. non-manufacturing sector strengthens in December

• The Institute for Supply Management's (ISM) Non-Manufacturing Index edged 1.1 points higher in December to 55.0. The headline number landed ahead of consensus expectations, which called for the index to improve to 54.5.
• The details of the report were mixed. Most of the boost to the headline came from the business activity subcomponent, which rebounded to 57.2 (from 51.6) reversing the decline in the month prior. The supplier deliveries index also ticked higher to 52.5 (from 51.5). Meanwhile, the employment subcomponent and new orders both slipped, declining by 0.3 points (to 55.2) and 2.2 points (to 54.9), respectively.   
• Other indicators were also mixed. Backlog of orders declined to 47.5 (from 48.5), remaining in contractionary territory. Import orders rose for the first time since July (+3.0 points to 48.0), but remained in contractionary territory. Export orders slipped, declining by 1.0 points to 51.0.  
• After moving higher in the prior month, the prices paid subcomponent remained unchanged in December at 58.5.
• Growth was slightly less widespread than in the prior month. Eleven out of 18 industries reported growth in December, down from 12 in November.

Key Implications

• Diverging from its manufacturing counterpart, the non-manufacturing index improved in December, ending the year on a good note. Helped by healthy consumer fundamentals and less exposure to trade tensions, the non-manufacturing index remained in expansionary territory throughout 2019, unlike manufacturing, where activity has been contracting for the past five months. 
• Comments from the survey respondents were balanced. Trade uncertainty was mentioned a couple of times, however, companies appeared to be less concerned than in the months prior, likely reflecting progress in the U.S.-China trade talks. Indeed, a Phase 1 deal – expected to be signed as soon as next week – may help de-escalate trade-related uncertainty a touch, but trade tensions between the U.S. and its major trading partners are likely to remain elevated this year. 
• Luckily, the outlook for consumer spending remains upbeat. With the labor market continuing to churn out solid job gains, interest rates remaining low, and wages rising at a decent pace, the fundamentals for consumption are healthy heading into the new year. As a result, American consumers will help to insure continued growth of services sector. 

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