The Institute for Supply Management, the Tempe, Arizona-based trade group that just two days ago posted a better-than-expected reading on manufacturing activity in April, has just come out with rather disappointing news on the non-manufacturing, or services, sector.
Specifically, the ISM reported that its non-manufacturing survey registered a reading of 53.5 last month, 3.5 percentage points above the line separating an expanding services sector from one that is contracting, but, nevertheless, a full two percentage points below the reading forecast and two-and-a-half points less than the result for the month before.
All told, this was the weakest survey result since December, when the figure came in at 53.0. Readings thus far this year have been 56.8 in January, 57.3 in February, 56.0 in March, and the aforementioned 53.5 for April. In addition to the aggregate score, we also saw a somewhat lesser rate of expansion last month in new orders (53.5 versus 58.8 in March), prices (53.6 versus 63.9), and employment (54.2 versus 56.7).
On the other hand, increased strength was noted in backlogs (53.0 versus 49.5 in March), exports (58.0 versus 52.5), and inventories (61.0 versus 58.5). On the whole, the month-to-month change in the aggregate index and especially in the individual components was greater than normal, suggesting that there is some volatility being introduced into the services arena, a category that accounts for some two-thirds of overall economic output, or GDP.
Meanwhile, the latest expansion made it 28 consecutive months in which the nation's purchasing and supply executives had reported an increase in activity in this area, but the latest report did show some deceleration in activity. Of the stronger industries among the 15 sectors summarized for the month, we saw solid gains in retail trade, information, and, surprisingly, construction. The three industries noting that there had been some contraction in the latest month were agriculture, forestry, fishing and hunting; utilities; and mining.
Comments by the managers interviewed for the survey included those in public administration, who maintained that sales had improved slightly, yet lagged behind pre-recession highs. Also, there were signs that things are picking up in arts and entertainment and in wholesale trade. However, others cited a slowing in professional, scientific, and technical services.
On balance, the report was disappointing, especially in comparison to the companion manufacturing survey, which was decidedly better than forecast. That said, this report was not a game changer, in our opinion, and we still expect GDP growth in the current quarter to exceed 2%, but not by all that much.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.