ISM Non-Manufacturing Summary

The results of the November ISM nonmanufacturing survey suggest that growth was still moderate and that the labor market is still in bad shape. The nearly 6-point drop in the measure of activity in the survey, which most closely tracks output in the nonmanufacturing sector, is consistent with very little growth in final demand, a finding somewhat at odds with more upbeat data on consumer spending.

The disparity between the surveys of manufacturing and services grew larger in November. In manufacturing, production is strong because firms are gradually moving to stabilize inventories, which is expected to account for a larger share of the increase in GDP growth this quarter versus last quarter.

The details of the survey point toward renewed growth in nonmanufacturing in the months ahead. In particular, the new orders index was little changed near 55, similar to the levels achieved during the latter years of the 2000s expansion. With inventories low, the level of orders should translate into a pickup in business activity.

A particular disappointment was the absence of greater improvement in the employment index, which is the weakest component of the nonmanufacturing survey. The relationship with the ISM nonmanufacturing employment index is loose, and other labor market indicators such as jobless claims point to an improving trend. Still, with the ISM manufacturing employment index also falling in November, the odds of a more significant reduction in job losses appear lower.