ISM non-manufacturing index falls but is still in growth mode

The Institute for Supply Management (ISM) reported today that while showing a bit of a decline overall, non-manufacturing activity in April remained in growth mode.

The ISM’s monthly Non-Manufacturing Report on Business stated that the index used by the ISM to measure non-manufacturing growth—known as the NMI—was 53.1 in April, falling 1.3 percent from March. Despite the decline, though, non-manufacturing activity increased for the 40th consecutive month.

A reading above 50 represents growth. Earlier this week, the ISM reported that the PMI, the index on which the ISM’s Manufacturing Report on Business is based on, fell 0.6 percent to 50.7 in April. This is below the 12-month average of 54.4.

The report’s four key metrics were all down in April. Business Activity/Production was down 1.5 percent at 55.0, and New Orders were down 0.1 percent at 54.5, and Employment dropped 1.3 percent at 52.0. As was the case in March, even with these declines, each metric remained firmly in growth territory.

“We have seen a little bit of slowing in the NMI growth rate, but each index is above contraction,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “It is better to see them in the mid-50s range than the low 50s range.”

Regarding Employment, Nieves said the index was at 57.5 percent in January, which he attributed to early in the year confidence regarding the economy, acknowledging it would likely be hard to maintain that pace, due to slowing in the economy, coupled with uncertainty and concern as well about the economy.

Comments from ISM respondents were mixed when it comes to the state of the non-manufacturing economy. A Transportation and Warehousing respondent noted that business appears to be on an upswing, whereas a respondent from Agriculture, Forestry, Fishing, and Hunting said that demand is similar to 2012 as it is well-controlled by suppliers with overall demand trending to become weak.

April Inventories saw a 4.5 percent gain to 56.0, while Prices fell 4.7 percent to 51.2. Backlog of Orders was down 3.0 percent to 51.5.

“Because Prices are where they are, there might be a little bit of forward buying in there, coupled with a strong January and February to begin the year,” said Nieves. “Companies were gearing up their inventories, because there is cycle time involved with that, and then we have to look at turnover rates and other things. With the increase in inventory levels, that definitely slows the rate in Backlog of Orders growth and definitely impacted Supplier Deliveries [down 2.0 percent to 51.0 in April] because you can pull from existing stock or whatever is being classified as inventory so the rate in deliveries is slowing down.”