Making Sense of the November ISM Services Report

Like many in the market, I believe that there are more than enough signs that point to a material economic downturn in 2008. But recently, we've seen a number of pieces of data that may suggest the predictions of doom and gloom are moderately -- if not significantly -- exaggerated. Take the recent ISM Services report data from November. A pessimist could look at the data and say that it suggests the U.S. is in for tough times next year. But I look at it and while I see slowing growth, I also see what still appears to be a solid reserve left to potentially keep us from tumbling backwards too fast (which was not what I personally forecast November's data would suggest).

According to the above-linked Market Watch report summarizing the data, "The ISM nonmanufacturing index fell to 54.1% in November from 55.8% in October ... Economists expected the index to slip to 55.0%, according to a survey conducted by MarketWatch ... New orders fell to 51.1% from 55.7%. This is the lowest level since April 2003 ... The employment index fell to 50.8% from 51.8% [and] ... service sector employers were being cautious about hiring new workers." Great news? No. But a proof point that U.S. economic curmudgeons like me were expecting to portend a big slide? Not quite. Still, I would argue that procurement and supply chain professionals should prepare themselves for a downturn or outright recession in North America in 2008. After all, there's nothing wrong with working through inventories or re-sourcing categories when demand is less constrained than it was during the boom time.

Jason Busch

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