U.S. ISM non-manufacturing index falls in January, economic growth likely to slow in months ahead

The U.S. ISM non-manufacturing index dropped 1.3 points to 56.7 in January. The headline print came in below consensus expectations of 57.1. Falls in business activity and new orders mainly weighed on the headline print. Business activity dropped by 1.3 points to 59.7 and new orders fell 5 points to 57.7. January marked the second straight monthly fall in business activity, but only the first drop in new orders since July.

The remaining two of four main subcomponents which make up the headline performed better. Encouragingly, after three straight falls, the employment subcomponent rose 1.2 points to 57.8 in January. The supplier deliveries index continued to be unchanged at a low level. The prices paid subcomponent also rose after an outsized fall in the prior month.

Trade-related components fell in January, with export orders falling by 9 points to 50.5, while import orders dropped 1.5 points to 52. It is important to note that trade components are not seasonally adjusted, and therefore, the falls should be interpreted with caution. Adjusting for seasonality produces a more moderate fall in the export subcomponent.

Comments from survey respondents were marked by concerns regarding the government shutdown and its effects on economic activity and sentiment. Most seemed to be coping with shutdown effects reasonably well, but were nonetheless concerned about uncertainty and the delays it was generating. Some industries, such as construction, saw considerable deceleration in business activity.

“Despite two back-to-back declines, the non-manufacturing index remains well in expansionary territory and overall activity is holding up quite well for now. Still, uncertainty in Washington and on the trade side is clearly weighing on business sentiment, and could slow growth in the coming months”, said TD Economics in a research report.  

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