The November ISM-New York Report on Business: Outlook Stands Alone

The November ISM-New York Report on Business was released on December 4th at 9:45am Eastern and is available for download here.

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.

Report Rundown

In November, New York City purchasing managers indicated lower conditions in all indices but two, the Six-Month Outlook and Prices Paid.

Current Business Conditions reached a five-month low, coming in at 67.8 in November. Current Business Conditions have fallen between 2 and 4 points per month for the last three months.

The Six-Month Outlook stands alone as the single piece of optimistic news in November, rising to 73.4 from 70.9 in October and recovering some of the 10.6 point drop reported last month. The six-month outlook has been a reliable short-run guide for current business conditions over time.

Employment, a seasonally adjusted index, fell from October's all-time high to 72.7 in November. Despite this month's change in direction, Employment is still at the third highest level on record, behind October (82.1) and September (73.8) of 2018.

Quantity of Purchases fell 11.2 points to 59.4 in November, continuing the decrease that started last month. October brought an 8.8 point decrease following September's finding of 79.4, the fourth highest level on record. Historically, significant highs in this index have been followed by a drop of between 17.5-30 points in the month following the high.

In November, top line and forward revenue guidance both fell. Current Revenues decreased for the third month in a row, coming in at 65.6 in November, down from 72.2 in October. Expected Revenues fell back to the same level they were at in September, 78.1, down from October's one-month increase to 80.6.

Prices Paid rose to 71.9 in November, up from 67.6 in October.

Further Consideration

Although this month’s findings seem to be a ‘bummer’ at first glance (yes, that’s a technical term), there are a few solid silver linings:

1. Employment may be down, but it is down to a high level, historically speaking.
2. Outlook stubbornly remains high, despite the drag of current conditions.
3. The drop in purchase quantity matches trends we’ve observed in the past, making it a planned or strategic decrease (after an opportunistic increase) rather than a quick reaction to bad conditions.

I came across an interesting article in the Wall Street Journal during the month that might help explain the continued optimism of New York City purchasing managers: America Has a Surplus in Services by Michael L. Corbat, published on November 13th. Reach out directly if you’re interested in reading it.

In the article, Corbat points out that for all the hand-wringing over trade deficits and trade wars, services are being left out of the fray. In fact, the U.S. continues to have significant trade surpluses in services. “Last year [2017] the U.S. trade surplus in services came to more than $250 billion, bringing the total trade deficit down to around $550 billion.” In other words, the U.S. has enough of a trade surplus in services to erase about a third of our overall trade deficit.

Corbat goes on to quantify the importance services to the economy: 75% of all jobs in the private economy and nearly all government jobs (22 million). “In this knowledge-based economy,” he writes, “the traditional division between services and manufacturing that permeates so much economic reporting is becoming artificial and obsolete.”

I offer up this point of view for two reasons. First, in support of New York City’s continued optimism, and second as a response to anyone that might dismiss the report’s findings as ‘just services’. As with all data, it is important to know what you’re looking at so that you can make sure it is relevant to your own work, and so it is important to remember that this is a services-driven report. But it does not diminish the value of the report’s findings. If anything, it strengthens them.

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 Thursday, January 3rd for the release of the December ISM-New York Report on Business.