December 2018 Institute for Supply ManagementSubmitted by Atlas Indicators Investment Advisors on January 17th, 2019
Economic output slowed in December 2018 according to data from the Institute for Supply Management. Both of their indices weakened as the year ended. On the manufacturing side, the index declined to 54.1 from 59.3; activities in this factory sector of our nation slowed to the lowest level since November 2016. Likewise, the non-manufacturing index fell to 57.6 from 60.8. On their own, these are solid tallies, but their rates of change have become a fly in the ointment.
Declines within the factory segment were broad-based. For the here and now, production’s tally dropped 6.3 percentage points to 54.3; this slowdown does not bode well for gross domestic product (GDP) in the final quarter of last year. Looking ahead, new orders plummeted 11.0 percentage points to 51.1 which could hurt future output. Employment, which has been a bright spot for the economy, weakened as well, declining 2.2 percentage points.
Data on the services side of the economy wasn’t much better. Business activity (the coincident portion of the report) declined 5.3 percentage points, also not boding well for fourth quarter 2018 GDP. Employment also weakened, dropping 2.1 percentage points. However, there was one marginal uptick worth mentioning: new orders improved 0.2 percentage points. While this increase is not monumental, it improves on an already strong tally, reaching 62.7 in December.
These indicators, two of Atlas’ favorites, are slowing. We like these two because they combine both segments of the economy and are released early compared to others we observe. We’ll watch these two closely as the year goes on because they tend to move with the contours of the economy. Right now, they suggest decelerating growth.