The ISM-New York Report is a highly regarded indicator of business conditions in the New York Metro area including a six-month outlook, employment index, and current and expected revenues.
For anyone new to either the ISM-New York Report on Business, or the national or other regional reports for that matter, the survey results are compiled as diffusion indices – meaning we take the percent of positive responses plus one-half of those responding that conditions remained the same (which we consider positive). A reading of 50% means no change from the prior month, greater than 50% indicates a faster pace of activity, and less than 50% a slower rate. Each month is not so much a reading of the current level of activity as it is a trend up, down, or the same from the previous month. As I run through the numbers in a minute, you can consider anything above 50 good news and anything under it… well, not so much.
A note specific to the New York Metro area, where all of this report’s respondants are located: they are predominantly in services industries: information services, finance, insurance, scientific, technical, and educational. While I’m sure that does not come as a surprise, it is important to keep in mind when you think about the trends being reported by purchasing managers through this report.
With that background, let’s transition to this month’s report.
Current Business Conditions were at 56.3 in December, down from 58.1 in November. In 2017, current business conditions ranged from a low of 46.7 in May to a high of 62.8 in July. With the December report, the year ends above the 12-month average of 54.9.
The Six-Month Outlook made a huge move to 85.7 in December, up from 69.7 in November. This is the highest result we have seen in this index since July of 2006 (89.7), 11 years and 5 months ago. The six-month outlook has been a reliable short-run guide for current business conditions over time.
Employment, a seasonally adjusted index, was 42.9 in December, ending three consecutive months of increases, but remaining higher than December 2016 (42.0). Quantity of Purchases dropped slightly to 55.0, ending two consecutive months of increases.
In December, the top line and forward revenue guidance pulled back from the significant one-month increase seen in November. Current Revenues came in at 55.0 in December after reaching an eight-month high of 64.3 in November. Expected Revenues were at 63.6 in December, down from November’s 15 month high of 71.4. Prices Paid increased for the fourth month in a row, coming in at 66.7 in December, up from 62.5 in November.
There is a lot to consider in this month’s report, but the one headline we can’t ignore is the fact that New York City purchasing managers reported the highest 6-month outlook in over a decade.
On the one hand, it is hard not to be excited about high optimism. Between the strong holiday shopping season for the retail industry and the passage of the Republican-led tax bill, businesses are excited for 2018.
On the other hand, as someone pointed out to me, hitting a number this high means that there is almost nowhere to go but down. As we’ve all heard in the business network year-end wrap ups, the markets had an amazing year in 2017.
The Dow hit 71 record highs during the year and has risen nine months in a row, the longest streak since 1959. The NASDAQ has now risen for 6 straight months – 9 for the S&P. When we talk about optimism, it can be low or high, so to use a more neutral word, let’s talk about expectations. The expectation I have heard from many places is that improved business performance and economic growth are already assumed in the markets, so if one of them – or one of their flagship stocks – fails to deliver, the whole thing is supposed to fold like house of cards. And yet, that belief (or worry) is not enough to change expectations. Despite the optimism and all of the reasons we’re supposed to expect a downturn, we just keep believing that there is more on the horizon. In 30 days we’ll have another report, and chances are, the index for six-month optimism will be down. I’m willing to make a gamble and say that expectations will still be up.
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, February 2nd for the release of the January report, the first of 2018.
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