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 respondents 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 72.5 in January, up almost 20 points from December. This marks the highest level reported since November of 2006 when current business conditions were at 77.1. At that time, the Six-Month Outlook was also in growth territory at 73.0, but it was lower than what we are seeing this month.
To that point – the Six-Month Outlook fell from the 11 plus year high reported in December to 76.1 in January. If not for that spike, January’s outlook would actually represent a 4 year high, so it may be down, but we have to keep in perspective that 76 is still squarely in growth territory.
Employment was 58.4 in January after falling below the breakeven point of 50 in December. This is the second highest level this index has reached in 2 and a half years, failing to top the high point of 64.6 in November of 2017. Quantity of Purchases dropped for the second month in a row to 50.0.
In January, top line and forward revenue guidance moved in different directions, with current revenues making the greater move. Current Revenues fell 7.6 points to 47.4, and Expected Revenues rose 4.8 points to 68.4 in January. Prices Paid fell to 60.5 after four months of increases.
Last month was exciting because we ended 2017 with a record high six-month outlook. This month, that number was down but current business conditions reached an equally meaningful record. If I had to choose between the two, I’d pick for current business conditions to be up, and here is why. The six-month outlook is just that – the level of growth or contraction that the purchasing managers think they will see six months in the future. For January’s report, that is June. There is definitely meaning in this, especially for publicly traded companies that are on a traditional 4 quarter reporting schedule, because this month they effectively called their shot for the second quarter.
Current business conditions, on the other hand, are a measurement of what they think the next month will hold as compared to the month before. These responses are more likely to be rooted in activity that purchasing managers are already seeing and requests for contracts or demand that is already in progress. This month’s 11 plus year high business conditions may be connected to another of the report’s indices – employment.
The question that we use to capture employment levels is this: Compared to the previous month, how will the number of employees at your company change this month? As a result, our employment measurement is an indication of intent to hire. With this number at its second highest level in 2 and a half years, companies are hiring because they believe the activity will be there to justify it – in the next 30 days and beyond.
Returning to one of my opening points about the ISM-New York membership being predominantly services, all of this optimism reflects growth in other industries as well as an increased flow of investment funds. As I titled this month’s report: optimism today, optimism tomorrow!
Links and Resources: