The December ISM-New York Report on Business was released on January 3rd at 9:45am Eastern and is available for download here. Please see the end of this commentary for additional information on the ISM-New York Report on Business.
In December, New York City purchasing managers indicated lower conditions in all indices but one, Current Revenues, according to the survey taken by the Institute for Supply Management-New York.
Current Business Conditions reached a six-month low, coming in at 65.4 in December. Current conditions have now fallen for four straight months. Despite the above facts, this month marks the highest December since 2014, when current business conditions were at 70.8.
The Six-Month Outlook dropped considerably month over month, falling from 73.4 in November to 57.1 in December. This marks the largest one-month decrease since November of 2008 (which fell by 21.9 points). This month's outlook reached a 26-month low, looking back to October 2016 when it was at 56.9. The six-month outlook has been a reliable short-run guide for current business conditions over time.
Employment, a seasonally adjusted index, continued its descent from October's all-time high to reach 64.5 in December. Although Employment fell to a four-month low in December, it still marks the highest level recorded in the month of December since it was added to the report in November 2007. Quantity of Purchases fell for the third month in a row, coming in at 54.2 in December, a six-month low.
Top line and forward revenue guidance moved in opposite directions. Current Revenues was this month's lone increase, reaching a three-month high of 75.0. Expected Revenues fell to 62.5 in December from 78.1 in November, a 15-month low. The decrease of 15.6 in this index mirrors the 16.3 point drop reported in Six-Month Outlook this month. Both indicators point to expectations for June 2019, the close of Q2.
Prices Paid fell to 63.6 in December from 71.9 in November, a six-month low.
I couldn’t help thinking about this month’s survey findings while watching the rain fall down on the New Year’s Eve revelers in Times Square on Monday night. For months, outlook and business conditions remained cautiously optimistic despite fears of global trade disputes. In December, it all finally came crashing down.
If I try to step back and think objectively about what this month’s report teaches us, I see both good news and bad news – despite December’s downturn.
First, the bad news:
The large, parallel drops in outlook and expected revenues, both of which look six months out, demonstrate systemic pessimism for the future. It is this kind of mindset shift that causes businesses to ‘go to the mattresses’ rather than taking the risks in pursuit of expansion. The level of stock market volatility we saw in the final days of 2018 only serves to reinforce that point of view. Unknowns are always bad from a planning point of view, but when there is a lot of market fluctuation, decision makers often focus their energy on bracing for the low points rather than swinging for the high ones.
And then the silver linings:
First and foremost (downward trends notwithstanding) every index is still in growth territory (above 50.0). If current trends persist, that may not be true for long – especially for the six month outlook and quantity of purchases – but it remains true for December 2018.
Quantity of purchases were up before they started their current three-month slide, so hopefully procurement did their job and stockpiled enough cost-opportunistic supplies to weather the reported increases in prices paid. Keep in mind that we track prices paid, not total spend. Tracking them separately makes it possible for us to observe changes in demand v. changes in cost, preserving the possibility that companies will still be able to protect their bottom line – at least for a while.
We saw some monthly spikes and drops this year, but if we smooth out the peaks and valleys and instead look at averages, the situation looks a little more palatable. For instance, in the 11 full years of data we have on Employment, which looks at whether the companies surveyed intend to increase, decrease or leave headcount the same each month, the 2018 average was 5.4 points higher than any other year on record. Annual average Current Business Conditions (65.3) and Six Month Outlook (70.8) were both at the highest levels since 2010, when they were 66.7 and 74.9, respectively.
2018 was an ‘up’ year if we look at it in the larger perspective. Where will 2019 take us? It is most certainly too early to know.
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 Monday, February 4th for the release of the January ISM-New York Report on Business.
About the ISM-New York Report on Business
Like ISM’s national report, 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.