ISM Non-Manufacturing Composite Eases

Moderation in business activity and sharp improvement in delivery times pulled down ISM's non-manufacturing composite in December, overshadowing one of the strongest months ever for new orders. The composite index eased by 3.1 points to 57.6 which is on the low side of Econoday's consensus range. But new orders added 2 tenths to November's score for 62.7 in December which, next to 63.2 in June last year, is the highest in 8 years. And importantly, orders are getting a boost from foreign demand as new export orders rose 2 points to 59.5.

Business activity, which for non-manufacturers translates to production, slowed by more than 5 points to 59.9 in what, however, is probably a welcome sign of cooling from what has been arguably unsustainably strong growth for this sample. Delivery times came in at 51.5 to indicate the best vendor performance since August 2017. This is good for members of ISM's sample but not for the composite as better times are consistent with easing pressures on capacity and are considered an indication of slowing congestion in the supply chain, and with it, slowing demand in general. Input costs likewise moderated with prices down nearly 7 points to 57.3 to indicate the least inflationary pressure since July 2017.

Other readings include a sharp draw in inventories which for non-manufacturers and in contrast to manufacturers are generally of secondary importance. Employment also slowed, downs 2 points to a still very healthy 56.3 which contrasts, however, with the enormous payroll surge in last week's employment report from the Labor Department.

The gain in export orders underscores that foreign demand for U.S. services is a major strength of U.S. trade, a fact often obscured by the nation's very large deficit in goods. This report is mixed as the welcome slowing in activity looks to be temporary given the great pace of new orders that keep pouring into ISM's sample.