The September ISM-New York Report on Business: Help Wanted!

The August ISM-New York Report on Business was released on October 2nd at 9:45am Eastern and is available for download here.

Like the other ISM reports, 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 September, New York City purchasing managers reported the highest Employment number on record, according to the survey taken by the Institute for Supply Management-New York.

Current Business Conditions were at 72.5 in September, a 4 point drop from the 12-year high of 76.5 in August.

The Six-Month Outlook rose for the second consecutive month to 81.5 in September, reaching a 9-month high (85.7 in December 2017). The six-month outlook has been a reliable short-run guide for current business conditions over time.

Employment, a seasonally adjusted index, rose to the highest point since it was added to the Report on Business in November 2007. In September, Employment was at 73.8, up from 62.0 in August. Employment has never before been in the 70s. The second highest finding for this index was 67.4 in August of 2014. Quantity of Purchases rose to 79.4 in September, up from 66.7 in August. This is the fourth highest reading on record for this index, behind 87.5 (September 2006) and 80.0 (February and July of 2005). In each of the months that Quantity was in the 80s, the following month saw a significant decrease (to 70.0 in October 2006 and to 50.0 in both February and July 2005).

Top line and forward revenue guidance  both fell from August's all-time highs. Current Revenues fell to 78.1 in September from 83.3 in August. Despite the decrease, this month's Current Revenues finding is still the second highest on record. Expected Revenues fell to 78.1 in September from 87.5 in August.

Prices Paid fell to 75.0 in September, down from 78.6 in August.

Further Consideration

There are two really significant findings in this month’s report: employment and quantity. Both are interesting from an economics perspective, but you have to view them through a procurement lens to get the full color.

Employment

As I mentioned above, this month’s finding blows the historical numbers on this index out of the water. Not only was September the highest finding ever, it was 6.4 points highest than the next highest finding. This is probably both a good thing and a bad thing for these firms. The good news is that it indicates growth. With more and more services demand being met through third party contractors, these firms plan to aggressively hire direct employees. The less good news involves a two-part concern. Part 1: We don’t know if these firms are hiring just for growth or if it is to fill positions left open by good employees being enticed off elsewhere. Part 2: The exceptionally low unemployment rate right now means that it is harder than ever to find the right candidate for the job. If these companies can’t fill their open req’s, they may have to get creative to meet demand from their customers.

Quantity

This is where I’ll remind you that these are predominantly services firms. In fact, here is the list of industry sectors selected by this month’s respondents (from most to least).

• Professional, Scientific and Technical Services            
• Finance and Insurance
• Utilities                                                                         
• Information                                                                  
• Arts, Entertainment and Recreation
• Other Services (except Public Administration)
• Manufacturing                                                              
• Retail Trade                                                                  
• Real Estate, Rental and Leasing                                   

It would be easy to assume that the September surge in purchasing is a response to concerns about tariffs. After all, if you look at my comments in the report rundown above, each time quantity gets this high, it was followed by a significant drop the month after. We don’t know yet if October will bring a drop, but these companies aren’t likely to be affected by tariffs.

Utilities and manufacturing (and maybe retail trade?) might be worried about tariffs. But the other industries listed above - what are they really buying? Lots of indirect spend and facilities management. BUT… but: what if we combine this observation with the spike in planned employment. Maybe these firms are increasing what they spend with third party service providers until they can bring FTEs on staff. Maybe they are watching the capacity of the services supply chain and signing deals for supplemental services now because they anticipate the competition for bandwidth going even higher next month, increasing both scarcity and costs.

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 Friday, November 2nd for the release of the September ISM-New York Report on Business.