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Activity moderation in Non-manufacturing ISM was broad based

Published on December 4, 2024

Gerard MacDonell

The closely watched new orders series in the non-manufacturing ISM slipped from a strong 57.4 to a middling 53.7 in November. Occasionally, the new orders series taken in isolation can give a slightly misleading sense of the signal from the report. The report also includes a measure of current business activity, which seems not to get much attention, perhaps because it is not featured on the Bloomberg ECO page. And sometimes, it diverges from the new orders series, mitigating that signal. But this month the two series moved together, as the current business activity index fell from 57.2 to 53.7. The employment index also reversed its earlier rising trend and slipped to a level that is roughly consistent with trend employment growth.

I suppose we could shoehorn this development into two broader themes. First, the soft data have indicated a much stronger upturn of expectations than of current activity, post the election. And it is probably the current activity measures that matter more, something I point out as a non-fan of Trump but also as an economy bull. Business folks tend to lean Republican, so their excitement might not tell us much. All will be determined by what Trump actually does, which is an open question.

Second, if Trump were to impose tariffs, there would be “relief” (from competition, not a good thing) in parts of the manufacturing sector, I suppose. But that relief might feel brief if the Fed has to respond to an inflation pulse. Again, we shall see. But for the service sector, a tariff increase would be just unalloyed bad news. So, for the service sector, they might get excited by tax cuts and deregulation, but the tariff aspect is not a mixed bag.

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