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Non-manufacturing shows more growth in March, according to ISM report

By Jeff Berman, Group News Editor
April 03, 2014

Non-manufacturing activity in March was solid, as was the first quarter, according to the Institute for Supply Management’s (ISM) March Non-Manufacturing Report on Business.

The NMI, the ISM’s index to measure growth, rose 1.5 percent to 53.1 in March. A reading above 50 represents growth. The March PMI is 1.1 percent below the 12-month average of 54.2, and the cumulative average of the PMI for the first quarter is 52.9. The positive March NMI reading marks the 50th consecutive month of growth for the non-manufacturing sector.

Three of the report’s four key metrics, including the NMI, were up in March. Business Activity/Production fell 1.2 percent to 53.4, and New Orders were up 2.1 percent to 53.4. Employment increased by 6.1 percent to 53.6, marking its largest month-over-month increase since the inception of Non-Manufacturing Report on Business in January 1998.

“When looking at the report overall and the first quarter leading up to this month, we saw steady growth along with some contraction in certain indexes,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “Weather was a significant factor, too, and even though the numbers don’t reflect contraction, we have seen a slowing in the rate of growth across the board for certain indexes. That was the case for employment in February (which dropped 8.9 percent), which recovered in March and truly benefitted the PMI.”

Had employment kept on the contraction path it was on in February into March, Nieves said March’s data would have been in dire straits.

ISM member comments in this month’s report were mixed to a degree, with some respondents making it clear that weather remained an issue.  An arts, entertainment, and recreation respondent said that cold weather played havoc on revenue, causing steep declines for nearly a week before picking up beyond expectations, and a professional, scientific, and technical services respondent noted that bad weather in the northeast resulted in lost business and travel days and impacted site visits and also saw energy prices rapidly increasing.

Nieves made it clear that the impact of the winter weather should not be understated, given the growth that still occurred even with weather a wildcard throughout the entire first quarter. He said that growth could have been greater had the weather not served as the obstacle it did, with ISM members largely optimistic that as the weather heats up, growth expectations are increasingly positive going forward.

New orders in March continued its steady path of growth as it has for the last 56 months. One potential detriment, though, to continued growth, noted Nieves, is the health care reform law in the U.S., whose direction is uncertain, based on feedback from ISM members, with some saying it is an impediment and others saying it is helping their business.

March supplier deliveries and inventories at 52.0 and 48.0, were down 1.0 percent and 2.5 percent, respectively.

“Deliveries are in a good place when they are over 50,” said Nieves. “Slowing deliveries means a much better economy, with demand outpacing supply, and when deliveries are in the mid-to-upper 50s and you see gains in PMI, new orders and business activity, that is a very robust situation for the economy and business conditions. What we saw in March is that the rate of supplier deliveries is slowing down at a slower pace, and deliveries would have slowed faster if so much of the inventory was not burned off. This is what led to inventory contraction, with some of that having to do with weather and some having to do with companies paring their business levels.”

Slow, incremental growth overall has continued to be the theme in the non-manufacturing sector through the first month of the year, with things currently on that pace, according to Nieves. And he said that is also reflected with optimism on behalf of ISM member respondents looking ahead towards the coming months.

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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