ISM reports non-manufacturing growth remains intact in April
May 05, 2014
The Institute for Supply Management (ISM) reported today in its Non-Manufacturing Report on Business that non-manufacturing activity remained on a solid trajectory in April.
The NMI, the ISM’s index to measure growth, headed up 2.1 percent in April to 55.2 for its highest level since August 2013. A reading above 50 represents growth. April’s NMI is 0.9 percent of the 12-month average of 54.3 and represents the 51st consecutive month of growth in the non-manufacturing sector.
Three of the report’s four key metrics, including the NMI, were up in April. Business Activity/Production saw a 7.5 percent gain to 60.9, and New Orders were up 4.8 percent to 58.2. Employment dropped 2.3 percent to 51.3, following March’s 6.1 percent gain to 53.6, which stands as the largest month-over-month increase since the inception of Non-Manufacturing Report on Business in January 1998.
“Looking at the data in the report and comments from respondents within it, there is a feeling that business conditions in the economy are definitely improving,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “Respondents indicated a pick up in sales due to a break in the weather, with business levels stable, and steady market conditions with outlooks on target. Things are starting to look better, and it is reflected in the numbers. The two drivers here are business activity/production and new orders.”
The drop in employment is a bit of a lag on the NMI, explained Nieves, but he pointed it is still growing month-over-month, although at a slower, incremental pace.
April supplier deliveries saw a 1.5 percent difference from March at 50.5. with deliveries above 50 indicating a slower pace, and inventories were up 7.5 percent at 55.5.
Even with a slowdown in supplier deliveries, Nieves said that is not a major concern, as there are enough product and services in the pipeline to keep business levels strong as activity increases. When that happens inventory is withdrawn and subsequently replenished, as was the case with the 7.5 percent gain in April.
Backlog of orders dipped 2.5 percent in April to 49.0. Even though there was a decline, Nieves said companies were fortunate there were enough products and services flowing to prevent a true lack of growth in order backlog.
“In a perfect word, we want to see backlog growing,” said Nieves. “We want to see inventories in a steady growth pattern without being excessive. If we are seeing backlog, it reflects a good picture of the economy, with growth in demand at a level where economic conditions are improving.”
On a year-to-date basis, Nieves said that even as the year began a little slow there is now decent momentum, even though it remains to be seen if it turns out to be steady, incremental growth or something stronger.
“As much as conditions have improved month over month, these numbers show a good uptick and point to a steady, sustainable growth path in the coming months,” he said.
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