ISM reports slight decline in April non-manufacturing output, while growth remains intact

The index ISM uses to measure non-manufacturing growth—known as the NMI–dropped 2.0% to 56.8 (a reading above 50 indicates growth) in April. The April NMI is 0.08% below the 12-month average of 56.8.

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Despite declines for a few of its key metrics, non-manufacturing activity in April was solid overall, according to the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business, which was released today.

The index ISM uses to measure non-manufacturing growth—known as the NMI–dropped 2.0% to 56.8 (a reading above 50 indicates growth) in April. The April NMI is 0.08% below the 12-month average of 56.8.

Non-manufacturing activity has seen gains for 98 consecutive months, with the overall economy growing for the 103rd consecutive month.
ISM said that all 18 non-manufacturing industries reported growth in April, including: Mining; Utilities; Retail Trade; Educational Services; Wholesale Trade; Construction; Transportation & Warehousing; Public Administration; Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Finance & Insurance; Other Services; Arts, Entertainment & Recreation; Management of Companies & Support Services; Professional, Scientific & Technical Services; Accommodation & Food Services; Information; and Health Care & Social Assistance.

The report’s key metrics, including the NMI, were mixed in April, including
-business activity/production was down 1.5% to 59.1 and growing for the 105th month in a row;
-new orders were up 0.5%, growing for the 87th consecutive month;
-employment fell 3.0% to 53.6 and growing for the 50th consecutive month
-supplier deliveries slowed down at a slower rate% at 54.5 (a reading above 50 indicates contraction) and slowing for the 28th straight month;
-prices increased 0.3% to 61.8, up for the 26th consecutive month; and
-inventories were up 3.5% at 57.0, up for the third month in a row

Comments submitted to the report by ISM member respondents were mixed, with a fair amount of attention again being paid to tariff-related news, as well as other factors, too, especially tight trucking capacity and the ongoing driver shortage.

“[The] national shortage of Class-A drivers and the increased demand for logistics is resulting in an increase in the cost of goods,” said an Accommodation & Food Services respondent.

A construction respondent stated that the trade tensions are impacting purchasing of steel and are causing suppliers to send letters of concern regarding contracted purchases for this year and the future based on these proposed tariffs.

“Even though the NMI was down in April, it is key to recall that 2018 started so strong with January’s reading off of a December that was on the low side,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview.  There are a few things to factor into that. One is supplier deliveries which are still slowing, as well as employment, which came off of a 56.6 reading in March down to 53.6 in April. And all 18 industries reported growth in April, with only 15 reporting growth in March, even though the index was higher in March.” 

Nieves said it was somewhat surprising that new orders remained as strong as they did in April, while wondering how sustainable its rate is for the duration of 2018.

“It does not seem like anything could get it off the rails, but, yet now, the sentiment and uncertainty creeping in around tariffs is also impacting the cost of goods,” he said. “It may be too early to tell the full impact of tariffs, but it also may not be as early as we think. The wholesale arena, or the distribution piece, is very critical for non-manufacturing, with most things coming in by truck. You see it in accommodations for food services in remote and disparate locations, as well as the hotel industry, and with big distributors that ship to them, whether it is a national distributor or just in regional markets. It is tough moving stuff around, whether it is renovations for moving furniture from different locations impacting cycle times. And within the labor pool, companies are still having a hard time finding drivers. It just seems that the generations coming up do not have an interest in wanting to get involved in overland trucking, as well as in skilled labor and construction. Now, people are moving out of those types of careers and getting into tech-type jobs, rather than going to a trade school or college. It is different now.” 

When asked about the prospects for non-manufacturing in May, Nieves said it is likely things will move a little “sideways,” with not much in the way of any type of dramatic change, at least until there is more clarity on tariffs and related trade negotiations.

About the Author

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. Contact Jeff Berman

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