The September 2020 ISM-New York Report on Business: Continued Adjustment to Uncertainty
In September, New York City purchasing managers reported significant short-term improvements in Current Business Conditions and Current Revenues against a drop in Six-Month Outlook, according to the survey taken by the Institute for Supply Management-New York.
Click here to view the full report: 2020_ISM-New_York_September_ROB_v02.pdf
Current Business Conditions gained back the losses reported in August, increasing 13.2 points from 42.9 to 56.1 in September. This is much like the increase reported (and then lost) from May to June. This index reflects the largest change seen in this month's report.
The Six-Month Outlook fell from 61.7 in August to 48.9 in September. This is the continuation of a now 5-month trend of the outlook alternating between the 40s and the 60s, mimicking the feeling one gets while riding the Cyclone on Coney Island. The six-month outlook has been a reliable short-run guide for current business conditions over time.
Employment, a seasonally adjusted index, increased slightly from 38.8 in August to 40.2 in September, remaining below the breakeven point for 7 of the last 8 months.
Quantity of Purchases fell back below the breakeven point reported in August to come in at 46.7 in September. With the exception of the 50.0 reported in August, this month's finding is the highest in just over a year.
Top line and forward revenue guidance moved in opposite directions once again. Current Revenues reached the breakeven point of 50.0 for the first time since February (58.3). With the exception of the decrease reported in August, Current Revenues has increased every month since May. Expected Revenues adjusted downward by 0.4 points in September to reach 42.9.
Prices Paid decreased after two consecutive months of increases, falling to 65.4 in September from the 7-month high of 67.9 reported in August.
September marks the 8th month of Reports with data collected during the time that the COVID-19 pandemic directly affected the U.S. economy. It is also the close of the 3rd quarter for businesses on a traditional calendar year financial schedule. So where are we on each of the indices compared to where we were in January of 2020 – before the virus hit?
Remembering that diffusion indices measure changes in activity (not business activity levels), here is how we currently stack up:
- Current Business Conditions [ Jan 45.8 | Sept 56.1 ] Business conditions were growing at a slower pace before the pandemic hit. The primary concern about the faster growth reported this month is whether it is enough to make up for the extremely slow rate of activity in April, March, and May.
- Six-Month Outlook [ Jan 57.3 | Sept 48.9 ] It is interesting to note that the 57.3 reported in January actually applied to June, the first month that business conditions started to climb up out of the depths. In addition, if I were doing this exercise last month instead of this month, we would be looking at an outlook of 61.7, which would apply to February of 2021. As noted above, the back and forth of the outlook is likely to be more of an indication of forward-looking uncertainty than it is actual expectations.
- Employment [ Jan 56.1 | Sept 40.2 ] I’ve often pointed out that the majority of the firms participating in the ISM-New York Report on Business survey are in professional services firms, and so employment is more closely connected to revenue and profitability than it might be in industries such as manufacturing that have the ability to leverage automation. The uncertainty for the future is keeping hiring low – especially in the New York Metro area – and that may continue through and beyond the fourth quarter.
- Quantity of Purchases [ Jan 43.1 | Sept 46.7 ] While both of these figures are below the breakeven point of 50.0, it is noteworthy that this index has predominately been in the 30s and 40s since the summer of 2019 – long before the effects of the pandemic.
- Current Revenues [ Jan 41.4 | Sept 50.0 ] Interestingly, current revenues roughly tracks current business conditions in both months, lagging just a bit. For an explanation of the difference, I look at both operating costs and the ability to negotiate higher margin deals. Despite the unknown, breaking even (from a growth perspective) in September is not a bad place to be.
- Expected Revenues [ Jan 64.3 | Sept 42.9 ] In expected revenues we see the same sentiment already discussed in the six-month outlook: uncertainty. The difference between the two indices in September specifically is that the outlook fell by 12.8 points month over month while expected revenues only fell 0.4. This may be due to the nature of the questions: outlook is general to the area, while questions about revenue are company specific and asked in a far more targeted way.
Remember to check back in with me on Tuesday, November 3rd for the release of the October ISM-New York Report on Business. In the meantime, stay healthy and stay safe.
The 2020 Report Release Schedule is as follows:
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.