ISM Non-Manufacturing Index shows growth in April

Like its companion report, which focuses on manufacturing, the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business showed positive growth for the 17th straight month in April.

The ISM’s index for measuring the sector’s overall health—known as the NMI—was 52.8 in April, 4.5 percentage points lower than March’s 57.3. Even with the sequential decline, a reading above 50 represents growth.

The NMI’s total reading is largely based on four core metrics. In April, they were all off from March levels, with Business Activity/Production down 6.0 percent at 53.7, New Orders off 11.4 percent at 52.7, and Employment falling 1.8 percent to 51.9.

“The report is pulled back, and we have had some slowing of growth here but it still beats contraction,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “We experienced very strong growth during the first quarter, but we are seeing a moderation of that growth with rising prices, cost pressures, and a bit of a wane in company and consumer confidence and the employment index all pulling it back a little bit.”

Overall, Nieves said that the strong performance in the first quarter, which had unanticipated strength, was at first thought to be sustainable, but to keep that pace intact would have been difficult, given the jobs outlook and increasing prices.

April Inventories were flat compared to March at 55.5, and Prices were down 2.0 percent at 70.1. Backlog of Orders were down 0.5 percent at 55.5.

While these metrics show how April and March were very comparable, how things play out with the NMI in the coming months remain to be seen. If prices continue to increase, Nieves said consumers are extremely likely to be more reserved in how they spend money, adding they will use more discretion when making investments.

“It depends on the specific industry within the non-manufacturing sector,” he said. “We typically see a little bit of dip in the report around the July-August timeframe, and it then starts picking up in the latter part of September and October again. It will be interesting to see because of all the different dynamics we have experienced over the last three years where exactly things go with the report this summer. What we do see is strength in traction in the latter part of the spring historically in non-manufacturing, and I think that is part of the anticipation of what is expected in the summer as a lead-in compared to what is actually happening at that point in time.”