The May ISM-New York Report on Business was released on June 4th at 9:45am Eastern and is available for download here.
The ISM-New York Report on Business (like the other ISM reports) 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% means no change from the prior month, greater than 50% indicates a faster pace of activity, and less than 50% 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. While I’m sure that does not come as a surprise, it is important to keep in mind when you think about the context for the trends being reported by these particular purchasing managers.
With that background, let’s transition to this month’s report.
Current Business Conditions were at 56.4 in May, down from 64.3 in April.
The Six-Month Outlook rose to a four-month high of 66.9 in May, up from 58.4 in April. The six-month outlook has been a reliable short-run guide for current business conditions over time.
Employment, a seasonally adjusted index, stayed just above the breakeven point by coming in at 50.2 in May, down from 58.3 in April. Employment has moved below the breakeven point just once in 2018: when it fell to 46.7 in February.
Quantity of Purchases remained at 50.0 for the second consecutive month. Quantity of purchases has been a relatively stable index, staying between 44.3 and 58.0 for 24 consecutive months. Prices Paid rose to 72.9 in May, reaching a seven year high.
In May, top line and forward revenue guidance both moved downward. Current Revenues fell 11.8 to 43.8, the lowest level since the index was added to the survey in February of 2012. Current revenues has only fallen below the breakeven point 10 times. Expected Revenues fell from April's 12-month high of 76.3, coming in at 71.7 in May.
One of the trickiest parts of completing this report each month is coming up with a tagline that fits the month’s findings without being too strong on either the positive or negative side. This month’s tagline was a question that nearly wrote itself: Optimism without profitability?
This month’s numbers tell an interesting story. Here’s the Readers’ Digest version: companies are buying the same amount of goods and services, but they are paying a ton more for them. In addition, the top line is taking a hit in the short term, which tells me companies aren’t able to charge a premium for the services they offer to customers. AND YET… optimism and expected revenues are both up. All of those factors combined make me wonder what the optimism is based on - hence my subtitle this month.
That said, I have a great deal of confidence in the ISM-NY purchasing managers, so I’m determined to find an explanation for their optimism. Here are three possibilities:
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, July 3rd for the release of the June ISM-New York Report on Business.