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ISM Non-manufacturing index down in April but growth patterns are intact

By Jeff Berman, Group News Editor
May 03, 2012

Even though overall activity showed a sequential decline for the second straight month, non-manufacturing activity remains on a solid growth path, according to the April edition of the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business.

The index ISM uses to measure non-manufacturing growth—known as the NMI—was 53.5 in April, down 2.5 percent from March’s 56.0 and down 3.8 percent from February’s 57.3, which was the highest NMI reading since January 2011. A reading above 50 represents growth. The April ISM Manufacturing Report on Business, which was released earlier this week, was up 1.4 percent at 54.8, marking its highest reading in ten months. With the March NMI remaining above 50, economic activity in the non-manufacturing sector has grown for the last 28 months, according to ISM.

Each of the report’s four core metrics was down in April on a sequential basis. Business Activity/Production was down 4.3 percent at 54.6, and New Orders were down 5.3 percent at 53.5. Employment was down 2.5 percent at 54.2.

“Even with growth still occurring, the fall off in the rate of growth can prompt concern that the economy is tanking and non-manufacturing is really slowing down,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “But there is still growth here; we got spoiled in the first quarter. A year ago we would have liked these numbers. If we saw Employment at 54.2 last year, we would have thrown a party.”

Nieves said steady continued growth is more welcome for the NMI than up and down monthly readings, but things like New Orders being down 5.3 percent in April need to be viewed with a longer lens to see how it plays out over a longer period of time.
Supplier Deliveries in April moved up 2.0 percent to 51.5, and Inventories were flat at 54.0. Backlog of Orders climbed 3.5 percent to 53.0.

“With Supplier Deliveries slightly slowing and order backlog increasing from the previous month, that means there is a little stress on capacity,” said Nieves. “They are not burning off inventory; they are going to need to replenish. Hopefully, there will be some increased employment in the picture because of the requirement for more capacity. The current inventory levels are manageable, with some room for [sequential] growth.”

Prices fell 10.3 percent to 53.6. Nieves noted that were some large spikes in fuel prices prior to this data being released, coupled with strong pricing as well.

Comments from ISM members that participate in the monthly survey indicated that while the economy is still showing decent signs of momentum and recovery things have also tailed off to a certain extent.

A wholesale trade respondent explained that business is still ahead of last year but has leveled off a little. And a transportation/warehousing respondent indicated that the high price of oil and fuel is driving up costs for all market areas.

Looking out over the next few months, Nieves said May and June activity is going to be pivotal, with some possible carry-over in July, when things tend to slow down due to summer vacation-related activity before re-gaining traction in the fall.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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