ISM reports growth in non-manufacturing activity in April

Non-manufacturing activity continued its run of growth in April, according to 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 57.8 in April which was 1.3 percent above March and also 0.5 percent above the 12-month average of 57.3. Economic activity in the non-manufacturing sector has grown for the last 63 months, according to ISM.

Each of the report’s four core metrics in April, including the NMI, was up compared to March. Business Activity/Production was up 4.1 percent at 61.6 while still growing at a faster rate for 69 straight months. New orders were up 1.4 percent to 59.2 while also growing for the 68th month in a row, and employment rose 0.1 percent to 56.7 while growing for the 13th straight month.

Fourteen non-manufacturing sectors reported growth in April, with four reporting contraction.

Comments submitted by ISM member respondents featured in the report were mostly positive. A retail trade respondent observed that there are overall positive trends, with spending improving and a transportation & warehousing respondent said that low fuel prices continue to have a positive impact.

“This report looks pretty good,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “There was a nice jump in business activity, and the increase in new orders leads us to believe we will see continued strength next month as well. The gain in employment was good, too, as employment goes, so goes non-manufacturing activity.”

Supplier deliveries were still slowing in April, down 0.5 percent to 53.5, slowing for the sixth straight month. And inventories showed growth up 1.5 percent to 51.0, following a March contraction.

A lack of pricing power was still apparent, with Nieves saying it was mainly driven by still-low fuel prices, with the prices index down 2.3 percent to 50.1 in March. Backlog of orders headed up 1.0 percent to 54.5. New export orders tumbled 10.5 percent to 48.5, due mainly to the continued strength of the dollar and weak global markets, he said. Imports fell 4.0 percent to 51.5 but are still growing, albeit at a slower rate.

While there are signals of economic growth, there are also headwinds, too, but Nieves said that when looking at the non-manufacturing sector, it is imperative to remember that the non-manufacturing economic activity contributes more than 80 percent to total GDP.

“When you look at the growth we have had, keep in mind that the growth we have had from 2007 to now is a different landscape,” said Nieves. “We are not having the same levels that we had in 2007, because things were pretty dismal during the recessionary period so the baseline has dropped. With non-manufacturing showing growth for the last 5.25 years and nearly six years on the business activity side, it has been slow incremental growth other than some spikes here and there. The most recent spike we saw was between December and February, with things cooling off a bit in March and now we are seeing it again back on a path of growth. It has been slow and steady and jobs have come back a bit but not entirely. It is still a good picture, and it looks like the economy overall is moving in the right direction, which is good but still not great.”

Early into the second quarter, Nieves said non-manufacturing on a quarter-to-date basis is on a solid path, with the pivotal months are leaving spring and entering into the summer, as there is often some softening-for the rate of growth-in the summer, with activity picking up in the fall into the holiday season.