Survey Chair Commentary: The June ISM-New York Report on Business
The June ISM-New York Report on Business was released on July 3rd 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 June, New York City purchasing managers indicated a solid end to the second quarter in the form of strong forward-looking business conditions and employment.
Current Business Conditions were at 55.0 in June, down just slightly from 56.4 in May, but falling for the second month in a row. This trend is interesting when compared to the six-month outlook of 85.7 reported in December 2017, the highest level of optimism seen in over a decade (and referencing June 2018).
The Six-Month Outlook rose to a six-month high of 78.1 in June, up from 66.9 in May. The six-month outlook has been a reliable short-run guide for current business conditions over time.
Employment, a seasonally adjusted index, rose to a seven-month high of 63.4 in June, up from 50.2 in May. Employment has risen into the 60's just twice in the last two years, and just ten times in the last five. Quantity of Purchases remained at 50.0 for the third consecutive month.
In June, top line and forward revenue guidance both rose significantly. Current Revenues rose back to the breakeven point of 50.0 after falling to 43.8 in May, which was the lowest level reported since the index was added to the survey in February of 2012. Expected Revenues rose to a 15-month high of 79.4 in June, up from 71.7 in May. Expected revenues have been above the level seen in June only four times since the index was added to the report in February of 2012.
Prices Paid fell to 55.9 in June, a welcome drop of 17 points after May's seven-year high of 72.9. Prices paid was the biggest mover in this month's report.
As I’ve mentioned before, I have my own ‘system’ for analyzing the monthly report numbers. It starts broad (arrows up and down) and then gets more specific, starting with the precise size of the move and then adding in my observations and key milestones for each index.
At the highest level, this month’s findings were almost ‘directionally ideal’. What do I mean by that? Anything that we would want to see go up (current business conditions and employment) goes up and prices paid goes down.
I say “almost” because current business conditions fell. They may have fallen slightly, just 1.6 month over month, but they fell all the same. This indicates a lingering concern with the prices, demand, and/or availability of supply that companies are facing today. At the same time, current revenues increased. And while they may have only increased to the breakeven point, they recovered from the lowest number ever recorded last month.
The forward looking indicators (six-month outlook and expected revenues) both provide us with good news. Both were in the high 70’s in June and represent milestone findings: 6 month and 15 month highs respectively.
So… to recap: 6 month expectations are high, indicating minimal known risk. Prices paid are WAY down, opening the door to profit. Employment is at a seven month high, which supports the idea that conditions will be good in the future. What might explain the tepid short term numbers? My mind goes to current demand. Maybe it is because we are in the summer months, and – as noted – most of these respondents work at services firms. Maybe the respondents are concerned about the sales pipeline, either based upon internal information or general news coverage. Either way, something muted the enthusiasm of New York Metro purchasing managers this month, but they aren’t expecting it to last.
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 Tuesday, August 2nd for the release of the July ISM-New York Report on Business.