Massive Economic Slowdown Apparent in January's Non-Manufacturing ISM Decline

National Non-Manufacturing ISM, which measures the larger service sector of the economy (88% of economy), unexpectedly plummeted in January to 44.6. The market had been looking for a reading of 52.4. This much lower level will clearly renew concerns about a recession! The index was redesigned for this month to fall more in line with the ISM manufacturing index which is a composite of the underlying indicators. The new ISM non-manufacturing index moves away from focusing on business activity, or production, for the headline indicator. Now this indicator is given equal weight with employment, new orders, and supplier deliveries. In truth, there has been a high correlation between the business activity index and the new composite index, so switching to the new index is not the cause of the large drop this month. The report was released early today because of concerns about a security breach. The January contraction was the first in almost five years for non-manufacturing ISM. Business activity, the old headline number, fell to 41.9 from 54.4 in December. New orders fell to 43.5%, from 53.9 the prior month.This was the first contraction for new orders since March 2003 and the lowest level since October 2001. Employment fell to 43.9%, the lowest since February 2002. Prices only eased slightly to 70.7, indicating only a modest slowdown in price gains. One bright spot was new export orders rising to 52 from 50 in December. Only three industries reported growth in January, indicating the slowdown was widespread as consumers and business grow increasingly cautious. The three industries showing growth were utilities, professional, scientific and technical services, and education. Fourteen industries showed contraction including construction, transportation, health care, finance, retail, hotel and food, etc.