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ISM non-manufacturing index is down from February to March but still growing

By Jeff Berman, Group News Editor
April 03, 2013

Coming off of a month which saw its highest reading in a year, non-manufacturing activity in March still showed positive signs, according to data released today by the Institute for Supply Management (ISM).

In its monthly Non-Manufacturing Report on Business, the ISM reported that the index it uses to measure non-manufacturing growth—known as the NMI—was 54.4 in March, which was down 1.6 from February’s 56.9, which was the highest NMI reading since 57.3 from February 2012. March’s 54.4 NMI reading was slightly below the 12-month average of 54.5. What’s more, the ISM noted that non-manufacturing activity grew in March for the 39th consecutive month.

A reading above 50 represents growth. Earlier this week, the ISM reported that the PMI, the index on which the ISM’s Manufacturing Report on Business is based on, dipped 2.9 percent to 51.3 in March.

In February, the report’s four key metrics all showed sequential growth, whereas in March it was the opposite.

Business Activity/Production was down 0.4 percent at 56.5, and New Orders were down 3.6 percent at 54.6, and Employment fell 3.9 percent at 53.3. Even with these declines, each metric remained firmly in growth territory.

“We hit such a high level last month and were not sure if it would be sustainable, but we figured that we would still be experiencing growth [in March],” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “And here we are at 39 months of growth. We had a bit of a fall off in the rate, but it is still good growth and a good place to be. We would have been very glad to have this rate a couple of years ago.”

Supplier Deliveries in March were up 1.5 percent at 53.0, and Inventories were down 2.5 percent at 51.5. Prices dipped 5.8 percent to 55.9, and Backlog of Orders was flat at 54.5, which may mean that the backlog was somewhat strained given the rise in February’s New Orders, said Nieves.

Even with the PMI down in March, the relative flatness in Business Activity/Production helped to keep the PMI in positive territory while New Orders was down 3.6 percent, said Nieves.

New Orders are still in growth mode, with future levels of sustainable growth very realistic, he said.

“That is the key thing, because we do not want to see these ‘head fakes’ and large spikes,” said Nieves. “We want some consistency. This is sort of an automatic correction, and 54.6 for New Orders is a good number to build on so we will see where it goes in the coming months.

As has been the case in recent months, comments in the report from ISM member respondents continue to reflect increasing signs of confidence in the economy.

A respondent from Management of Companies and Support Services cited how the economy and his business appear to be improving, and a respondent from the Professional, Scientific, and Technical Services sectors observed how the economy appears to be back on track for positive gains this year, cautioning how it might be a struggle although economic indicators and signs of business growth point to increased spending from customers.

While these comments do not by any stretch mean the economic headaches of recent years are now gone, it does support the theory of cautious optimism at the moment, explained Nieves.

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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