Raw Finance

The Institute for Supply Management™ has released its November 2009 Non-Manufacturing [Services] Report on Business®, showing a decline to 48.7 percent from the October level of 50.6 percent.  A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting. After two consecutive months showing expansion, the ISM Services Index for November reminds us that the economic recovery is not going to be a constant uptrend.  On the other hand, a slip back to contraction is not a reason for investors to panic.  Let’s look at the details to get more of the story.

Six industries reported growth in November:  Other Services; Health Care & Social Assistance; Construction; Finance & Insurance; Retail Trade; and Information.  It should be no surprise that financials, retail and technology shares have generally led the equity rally.  Health care has lagged due to concerns over legislation working its way through Congress, but these concerns may be overblown, so health care may offer the best value in equity markets rights now.  However, investors will need to be somewhat patient in investing in this space because the health care debate in Congress is really just getting started.

Eleven industries reported contraction in November: Real Estate, Rental & Leasing; Management of Companies & Support Services; Mining; Arts, Entertainment & Recreation; Public Administration; Accommodation & Food Services; Educational Services; Wholesale Trade; Transportation & Warehousing; Professional, Scientific & Technical Services; and Utilities.

New Orders declined slightly to 55.1 percent in November from 55.6 percent in October.  On the bright side, November was the third straight month of expansion for new orders.  Employment showed continued contraction at 41.6, though this reading was slightly higher than October’s 41.1.  Inventories, like employment showed continued contraction at 45.5 percent, but this was also an improvement from the October level of 43.0.  Comments from respondents on inventories were somewhat disconcerting though:  ”Continuing to consume existing levels” and “Inventory reduction due to slower previous month’s sales.”  That’s not the stuff of a robust economic recovery.  Prices paid for purchased materials and services jumped in November to 57.8 percent from 53.0 in October.

To view the full report, please click on the following link:  November 2009 Non-Manufacturing ISM Report on Business®.