The Institute for Supply Management’s Non-Manufacturing Index dropped from 53.9 to 53.0 in December. Although this is a decline, any reading above 50 indicates an expansion of activity in the service sector. This is consistent with a slightly slower pace of growth at the end of the year than in the third quarter of 2013.
The biggest cause of decline in the non-manufacturing ISM was a contraction in new orders. The new orders index went from expansion in November to contraction in December. The manufacturing new orders index, by contrast, accelerated its rate of growth from November to December.
In both the manufacturing and non-manufacturing sectors, inventories swung to contraction in December. This suggests that the surge in orders and inventory buildup in the non-manufacturing sector was ephemeral. The surge in orders continued in the manufacturing sector, but businesses likely viewed those gains as temporary, given the contraction of inventories.
The big takeaway from the ISM reports is that the third quarter’s rapid economic expansion of 4.1% gross domestic product growth is not likely to be repeated anytime soon. This is not to say that the economy will contract. It is more likely to continue expanding, but at a slightly slower pace, perhaps closer to 3% for 2014 with below-trend growth in the first quarter of 2014.
The views expressed are as of 1-6-14 and are those of Chief Portfolio Strategist Brian Jacobsen, Ph.D., CFA, CFP®, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.
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Source: Forbes Business