Non-manufacturing is solid in April, says ISM

Non-manufacturing activity showed solid gains from March to April, firmly remaining in growth mode, according to the most recent edition of 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—came in at 57.5, which topped March's 55.2 while growing for the 88th consecutive month. And the NMI is 1.9 percent above the 12-month average of 55.6 and at its highest level going back to February 2015.

The majority of the report's core metrics saw gains from March to April.

Business activity/production headed up 3.5 percent to 62.4, growing for the 93rd month in a row with 17 reporting industries indicating they experienced growth and one decreasing. New orders turned in another solid month, heading up 4.3 percent to 63.2 and grew for the 93rd month. Employment dipped 0.2 percent to 51.4 and with the reading above the 50 mark continued to grow for the 38th month in a row.

ISM said that 16 non-manufacturing industries reporting growth in March, including: Wholesale Trade; Utilities; Arts, Entertainment & Recreation; Mining; Retail Trade; Construction; Professional, Scientific & Technical Services; Information; Management of Companies & Support Services; Public Administration; Health Care & Social Assistance; Real Estate, Rental & Leasing; Other Services; Finance & Insurance; Accommodation & Food Services; and Transportation & Warehousing. The only industry reporting contraction in April is Agriculture, Forestry, Fishing & Hunting.

ISM member comments included in the report were largely positive. A construction respondent said that business levels are increasing, and more project inquiries are being received. A retail trade respondent observed that the overall outlook is positive for the second, third, and fourth quarters of this year.

“The NMI is in a good place, and the business activity reading bodes well for what is in the pipeline,” said Tony Nieves, chair of the ISM's Non-Manufacturing Business Survey Committee. “I don't know how sustainable this level is, but we hope it keeps coming.”

Addressing employment, Nieves said April's number is somewhat soft in terms of its rate of growth and matches up with the most recent Federal Government jobs report.

“I feel that that rate cannot stay there for employment if non-manufacturing continues to grow, because it becomes a capacity issue,” he said. “There are also some restraints built in insofar as there is a shortage of skilled labor. So the labor pool we are drawing from is diminished to where you cannot add jobs as quickly as what may be necessary. This is especially true in construction and healthcare. In healthcare, for example, there are more jobs than there are people available. And construction keeps showing up as a commodity in short supply.”

Other notable metrics cited in the report include:
-inventories up 4.0 percent to 52.5;
-backlog of orders up 0.5 percent to 53.5; and
-prices up 4.1 percent to 57.6

Through the first four months of 2017, Nieves said the non-manufacturing data is better than what was expected at the beginning of the year.

“When we first came out of the gate for 2017, things were higher than anticipated, and part of it was the carryover from the prospects of what was viewed as a ‘business friendly' White House, regardless of whether or not policies have been implemented,” he said. “And reading through the comments the only uncertainty that is out there relates to the geopolitical situation, with North Korea, Syria, and Russia. You can throw what is happening with healthcare, too. There are a lot of balls in the air right now.”

SC
MR