On the heels of the first expansion-territory ISM manufacturing print since July, ISM non-manufacturing came in at 55.5 for January.
That’s better than the 55.1 the market was looking for, and up from a seasonally-adjusted 54.9 in the prior month.
Business activity jumped to 60.9 (from 57.0), the highest since February of 2019.
Drilling down a bit, things look somewhat mixed. Employment fell, as did backlogs and new export orders. “The non-manufacturing sector exhibited continued growth in January”, ISM said, adding that “respondents remain mostly positive about business conditions and the overall economy [and] continue to have difficulty with labor resources”.
The 12-month average is 55.4.
Generally speaking, this is just one more piece of evidence to support the contention that the US economy is resilient and that expansions don’t die of old age.
Someone will find something to nitpick or otherwise be pedantic about, and that’s fine, but the point is, ISM services was another chance for the data to upend buoyant risk sentiment, and it didn’t happen.
Meanwhile, the Commerce department said the US trade deficit shrank for the first time in a half-dozen years in 2019, narrowing nearly 2% to $617 billion, thanks to declining imports of oil and Chinese goods.
America’s merchandise deficit with China plunged nearly 18% last year, after reaching an all-time high in 2018.
The narrowing of the deficit is largely down to oil. “Petroleum imports dropped $31.4 billion to $193.9 billion while exports increased, narrowing the full-year gap in such products to a record-low $13.7 billion”, Bloomberg explains, adding that “the non-petroleum goods deficit was $839.2 billion, a record high”.
Of course, the real irony here is that nobody besides Trump (and Peter Navarro) obsesses over the headline trade balance. And even if you’re inclined to, note that even with the marginal narrowing in 2019, it’s still 20% wider than it was prior to Trump taking office (see the visual above).
Still, Trump will doubtlessly suggest the first narrowing in six years is evidence of policy “success” (or “winning”, if you will), and when it comes to lower oil imports, he touted energy independence in the SOTU speech on Tuesday evening. Considered in conjunction with the fact that the president’s base doesn’t care much for nuance, there’s more than enough to brag about in the full-year data from Commerce.
And speaking of bragging rights, earlier Wednesday, ADP said US firms added 291k jobs last month, the most since May of 2015. Ostensibly, that’s a decent setup for the jobs report on Friday.
Famous last words before a letdown? Maybe.
From the ISM NMI survey
WHAT RESPONDENTS ARE SAYING
- “Outlook remains favorable for growth in 2020. Pricing on goods and services [are] stable, with little to no pricing escalations expected for the remainder of the first quarter, except for seasonal- and trade/tariff-related impacts on food products.” (Accommodation & Food Services)
- “Q1 sales are improving, which makes us more optimistic.” (Construction)
- “Cautious start to 2020. Looking forward with optimism and encouragement. Conditions are favorable.” (Finance & Insurance)
- “Closely monitoring China’s coronavirus and its potential impact on medical supplies like surgical masks and protective goggles.” (Health Care & Social Assistance)
- “The labor market continues to be a challenge, impacting capacity and pushing up costs. Despite this, overall business volume remains positive, with growth in key sectors for our business.” (Management of Companies & Support Services)
- “The oil and gas industry is off to a slow start in 2020, as oil prices dropped slightly to start the year. Companies continue to be highly disciplined about hiring direct employees or contractors and making capital investments that drive hiring. Several notable oil and gas companies announced layoffs in the first week of January 2020.” (Professional, Scientific & Technical Services)
- “Customer inquiries are strong to start the new year.” (Real Estate, Rental & Leasing)
- “Activity is fair overall, but with regional ups and downs. The West in general has been favorable due to snowfall increasing sales activity, while the East has been down due to warmer weather in key winter tire markets. Optimism for the month, however, is good.” (Wholesale Trade)
ISM® NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM® NON-MANUFACTURING AND ISM® MANUFACTURING SURVEYS*
JANUARY 2020
| Non-Manufacturing | Manufacturing | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Index | Series Index Jan | Series Index Dec | Percent Point Change | Direction | Rate of Change | Trend** (Months) | Series Index Jan | Series Index Dec | Percent Point Change |
| NMI®/ PMI® | 55.5 | 54.9 | +0.6 | Growing | Faster | 120 | 50.9 | 47.8 | +3.1 |
| Business Activity/ Production | 60.9 | 57.0 | +3.9 | Growing | Faster | 126 | 54.3 | 44.8 | +9.5 |
| New Orders | 56.2 | 55.3 | +0.9 | Growing | Faster | 126 | 52.0 | 47.6 | +4.4 |
| Employment | 53.1 | 54.8 | -1.7 | Growing | Slower | 71 | 46.6 | 45.2 | +1.4 |
| Supplier Deliveries | 51.7 | 52.5 | -0.8 | Slowing | Slower | 8 | 52.9 | 52.2 | +0.7 |
| Inventories | 46.5 | 51.0 | -4.5 | Contracting | From Growing | 1 | 48.8 | 49.2 | -0.4 |
| Prices | 55.5 | 59.3 | -3.8 | Increasing | Slower | 32 | 53.3 | 51.7 | +1.6 |
| Backlog of Orders | 45.5 | 47.5 | -2.0 | Contracting | Faster | 4 | 45.7 | 43.3 | +2.4 |
| New Export Orders | 50.1 | 51.0 | -0.9 | Growing | Slower | 3 | 53.3 | 47.3 | +6.0 |
| Imports | 55.1 | 48.0 | +7.1 | Growing | From Contracting | 1 | 51.3 | 48.8 | +2.5 |
| Inventory Sentiment | 54.9 | 60.0 | -5.1 | Too High | Slower | 271 | N/A | N/A | N/A |
| Customers’ Inventories | N/A | N/A | N/A | N/A | N/A | N/A | 43.8 | 41.1 | +2.7 |
| Overall Economy | Growing | Faster | 126 | ||||||
| Non-Manufacturing Sector | Growing | Faster | 120 | ||||||
Annual trade (im)balance still greater than any of the Obama years. Tell that to trump to get him “on the case.”