Survey Chair Commentary: The July ISM-New York Report on Business
The July ISM-New York Report on Business was released on August 2nd at 9:45am Eastern and is available for download here.
Like the other ISM reports, the ISM-New York Report on Business is compiled as diffusion indices –we add the percent of positive responses to one-half of those responding that conditions remained the same. A reading of 50.0 means no change from the prior month, greater than 50.0 indicates a faster pace of activity, and less than 50.0 a slower rate. Each month is not so much a reading of the current level of activity as it is an indication of growth or contraction from the previous month.
A note specific to the New York Metro area, where all of this report’s respondants are located: they are predominantly in professional services industries. It is important to keep this in mind when we think about the context for the trends being reported by these particular purchasing managers.
In July, New York City purchasing managers reported the highest current business conditions in 12 years.
Current Business Conditions were at 75.0 in July, up 20 points from 55.0 in June. The last time current business conditions were higher was in November of 2006 when they were at 77.1. Current business conditions have been in the seventies 8 times between (and including) November 2006 and this month.
The Six-Month Outlook fell slightly to 77.8 in July, down from 78.1 in June. The six-month outlook has been a reliable short-run guide for current business conditions over time.
Employment, a seasonally adjusted index, fell 1.2 points to 62.2 in July from 63.4 in June. Quantity of Purchases rose to 60.0 in July. Until this month, quantity of purchases have been between 44.3 and 58.0 for over two years. This month, the index also reached a 3-year high, looking back to June of 2015 when they were at 62.5.
Top line and forward revenue guidance both increased. Current Revenues rose to a 5-month high of 60.0, up from 50.0 in June. Expected Revenues rose to an all-time high of 86.7. This index has been tracked in the monthly survey since February of 2012. Expected revenues have been in the eighties only 4 times before this month: April 2015 (81.3), May 2015 (80.6), August 2015 (81.6), and March 2017 (80.0).
Prices Paid rose to 70.0, up from 55.9 in June, positioning last month as a 1-month drop.
The findings in this month’s survey are nothing short remarkable. Not only do we have a number of milestone index levels, they are high across the board. This is the only time that all of these indices have been collected (current and expected revenues have only been collected since February of 2012) and that they have all been above 60. Keep in mind, too, that we closed the survey for July on Friday the 27th – the day that the Q2 2018 GDP of 4.1% was announced – meaning that all of the optimism associated with that day did not meaningfully affect this month’s results.
There are two distinctions that occur to me as I look back over this month’s report:
Six-month outlook v. Expected revenues: The six-month outlook (a projected view of general business conditions) is down just the tiniest bit this month while expected revenues is undoubtedly the star of the show with its all-time high 86.7. This is incredibly significant because not only do businesses expect favorable conditions in January of 2019, they believe it is going to positively impact their own company’s top line. This sentiment will affect all of the decisions made about hiring, investing, risk, and strategic planning over the next six months, putting a growth mindset orientation behind all of it.
Employment mobility v. growth: When we measure employment in the Report, the question is about how the number of employees in the company is expected to change month over month. In theory, this disregards all of the hiring activity associated with replacing employees who move on or move up. Since we’re dealing with professional services firms here, any employee change has a significant impact on the value of the firm. Each hire (whether to increase headcount or replace talent lost through attrition) is an opportunity to shape what the firm is capable of. We talk about this all the time in procurement – as our core mission shifts, our talent mix has to evolve as well. It may create challenges for HR and hiring managers, but a growing shifting workforce becomes an opportunity to create competitive advantage (or not) in a professional services industry.
Please feel free to share your comments and feedback on this month’s report as well as to share it with anyone from your network that you feel would benefit from the information.
Remember to check back in with me on Wednesday, September 5th (because of Labor Day) for the release of the August ISM-New York Report on Business.