Must-know: Can business record 49 straight months of expansion?

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The Institute for Supply Management will release its non-manufacturing report on business for February on Wednesday, March 5. The report is based on data compiled from purchasing and supply executives nationwide.

Part 4

The Non-Manufacturing Index (or NMI) is a composite index based on the diffusion indexes for four equally weighted indicators: business activity (seasonally adjusted), new orders (seasonally adjusted), employment (seasonally adjusted), and supplier deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50% indicates that the non-manufacturing economy in that index is generally expanding. Below 50% indicates that it’s generally declining—except for supplier deliveries, where the reverse holds.

What did January’s Index reading indicate?

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Economic activity in the non-manufacturing sector recorded its 48th consecutive month of growth in January, according to the ISM’s survey of the nation’s purchasing and supply executives. The NMI recorded a reading of 54% in January—1% higher than December’s seasonally adjusted reading of 53%. The Non-Manufacturing Business Activity Index increased to 56.3%—2% higher than December’s seasonally adjusted reading of 54.3%. The New Orders Index, Prices Index, and the Employment Index all recorded month-on-month increases in index values.

Eleven non-manufacturing industries reported growth in January, with survey respondents commenting on general improvement in business conditions, though adverse weather had impacted some firms.

What does the reading mean for debt markets?

An increase in the index implies an expansion in business activity. Other factors remaining constant, this would increase demand for credit and result in higher interest rates—meaning lower bond prices. The reverse would hold should the index decrease.

To read about an important indicator that will affect the housing market and interest rates, move on to Part 5 of this series.

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