Non-manufacturing activity in April down slightly but remains solid, reports ISM

Even with a very slight decline, the non-manufacturing activity for the month of March was strong, according to data issued today by the Institute for Supply Management (ISM) in its Non-Manufacturing Report on Business.

The index ISM uses to measure non-manufacturing growth—known as the NMI—was 56.5 in March, which was 0.4 percent below March and also 0.6 percent below of the 12-month average of 57.1. Economic activity in the non-manufacturing sector has grown for the last 62 months, according to ISM.

Two of the report’s four core metrics in March, including the NMI, were up compared to February. Business Activity/Production was down 1.9 percent at 57.5 while still growing at a faster rate for 68 straight months. New orders were up 1.1 percent to 57.8 while also growing for the 67th month in a row, and employment rose 0.2 percent to 56.6 while growing for the 13th straight month.

Fourteen non-manufacturing sectors reported growth in March, with four reporting contraction.

A majority of the comments from ISM member respondents in the report pointed to positivity within the non-manufacturing sector. A health care and social assistance respondent said that business remained strong in March, and a professional, scientific and technical services respondent noted that there was a tremendous increase of business activities due to increase of capital investment, sales efforts and competition for human resources.

An interesting finding within the comments section had to do with the effect of lower fuel prices. A transportation and warehousing respondent said that lower fuel prices are improving overall profits but do not appear to be lowering fuel costs, and a utilities respondent noted that fuel costs continue to remain low, however, suppliers are not willing to give back on fuel surcharges or to reduce fuel components of transportation.

“The NMI is in line with the 12-month average,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “With the gains in new orders and employment up ever so slightly, that has kept the composite up with strong growth there. It has been a pretty strong first quarter for non-manufacturing and more robust than what we have seen on the manufacturing side. We will need to see what the second quarter brings us and how that trends out. But with the new orders index at 57.8 that bodes well for April business activity to head up or remain around the same level. Things are looking pretty good overall.”

Supplier deliveries in March dropped 1.0 percent to 54.0, and inventories dropped 5.0 percent to 49.5. Prices rose 2.7 percent to 52.4.

Nieves said the 5 percent drop in inventories partially reflects a post-holiday burn off, with companies matching up inventory levels to business levels and is also a direct reflection of why, especially on the manufacturing side, there is still more inventory on hand than needed to match business levels.

When asked about the current strength of the U.S. dollar, Nieves said it correlates fairly closely to imports, which were up 4.5 percent in March to 55.5.

“The stronger dollar is definitely contributing to the current level for imports,” he said. “As for exports (which rose 6.0 percent to 59.0), if we look at the industries leading the charge for exports like management of companies; professional, scientific and technical services; and information are three of the top four and are knowledge management-based companies. They do not impact global companies in regards to the strength of the dollar in the sense that those are usually done on a client basis or engagement, with more wiggle room for rates and negotiations as it relates to what they charge for an engagement fee or hourly rate. It is not high-density tangible goods or a fixed product.”