The May ISM-New York Report on Business: Nevermind…

The May ISM-New York Report on Business was released on June 4th 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.

Report Rundown

In May, New York City purchasing managers reversed course and gave up all of the gains reported in April.

Current Business Conditions fell from a 12+ year high of  77.3 in April to a 2-year low of 48.6 in May. This is the largest month over month drop reported in May, and it is the first time current conditions have been in contraction since September of 2017 (49.7). 

The Six-Month Outlook fell from a 7-month high of 77.8 in April to 56.3 in May. The six-month outlook has been a reliable short-run guide for current business conditions over time.

Employment, a seasonally adjusted index, fell from 66.0 in April to a 4-month low of 54.6 in May.

Quantity of Purchases decreased from 63.6 in April to a 3-month low of 56.6 in May.

In May, top line and forward revenue guidance both decreased. Current Revenues fell from 63.6 in April to 60.5 in May, a 4-month low. Expected Revenues gave back most of the 32.5 point increase (to 95.0) seen in April to 73.7 in May. If not for the extreme high last month, this month's finding would be the highest level since November of 2018 (78.1).

Prices Paid increased to a 4-month high of 72.4 in May, up from 63.6 in April.

Further Consideration

Last month’s big story was the expected revenues – 95.0! In April, 61% of the respondents thought revenues would be better six months out. In May, that number was almost cut in half: 32.5% of the respondents anticipate better revenues in November 2019 than we’re seeing right now. In my opinion, April’s high was the aberration – not the fall to May. As I note above, if we had gone straight from March’s numbers to May’s, expected revenues would be up by 11.2 points this month. June’s expected revenues index will be critical for two reasons: 1. Hopefully it will indicate some stability rather than another swing, and 2. It will indicate purchasing manager expectations for December 2019, the end of traditional Q4.

The other point that is important this month is seasonality. Four of the indices in the ISM-NY Report on Business are seasonally adjusted: current business conditions, six-month outlook, employment, and NY-BCI. Each of those has a seasonal adjustment factor that changes month by month. In May, we apply the highest seasonal adjustment of the year – an additional factor that may have accounted for some of the swings and the full ‘about face’ from last month to this month. In particular, it pushed current business conditions below the breakeven point of 50.0. If May’s seasonal adjustment factor were the same as we saw in April or February, we’d easily have landed in expansion territory. The again, “if wishes were horses then beggars would ride” as the old saying goes. Apparently this month, we walk.

Remember to check back in with me on Tuesday, July 2nd for the release of the June 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.