The Institute for Supply Management, a trade group based in Tempe, Arizona reported earlier this morning that non-manufacturing activity had expanded for a 16th consecutive month in March, albeit at a modestly slower rate than in February. In all, this report, which covers the key services sector, an area that contributes some 70% of aggregate gross domestic product, registered a reading of 57.3. (Note that a reading above 50.0 signals that the services sector is expanding, while a survey result between 42.0 and 50.0 suggests that this area is contracting, but that the aggregate economy is still improving. A reading below 42.0 is consistent with a recessionary economy. During the depths of the 2007-2009 business downturn, this survey result was often below the 42.0 recession level.)
By comparison, overall business activity was at a somewhat stronger 59.7 pace in February. Pushing the overall increase lower were lesser gains in such components as business production, new orders, employment, supplier deliveries, and prices. Helping to limit the slowdown were accelerating gains in backlogs, new exports orders, and inventory sentiment. It should be noted that each of these components expanded last month, with prices, which came in at 72.1, being the strongest of the various components. This broad strength gives us confidence that non-manufacturing will remain supportive to the economy at large.
In all, the 16 industries reporting growth in March included real estate, rental, and leasing; mining; management; retail trade; arts, entertainment, and recreation; health care and social assistance. Only educational services reported a lessening in activity last month.
Among the respondents chronicled in the latest report, overall observations included sentiment that business activity was steady, but concerns were voiced about high fuel costs and the speed of any recovery in Japan. Others noted that the housing market was still slow getting started, while concerns were expressed about rising prices in a variety of areas.
Overall, it was a decent report, although the aggregate level of non-manufacturing came in a little below expectations. The service sector's advance, while a bit slower, however, seems in no danger of stopping anytime soon. We sense, moreover, that this level of activity is probably consistent with GDP growth of some 3% going forward this year.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.