Non-manufacturing growth remains solid in April, reports ISM

With a less than one percent decline from March, April non-manufacturing activity was close to flat, according, to the Non-Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).

The index ISM uses to measure non-manufacturing growth—known as the NMI– fell 0.6% to 55.5 in April (a reading of 50 or higher indicates growth is occurring), following a 3.6% decline from February to March.

This reading represents the 111th consecutive month of NMI growth, with April’s NMI down 2.9% compared to the 12-month average of 58.4. The April NMI is 2% below the first quarter’s 57.5 reading.

ISM reported that 15 non-manufacturing sectors grew in April, including: Transportation & Warehousing; Professional, Scientific & Technical Services; Construction; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Public Administration; Health Care & Social Assistance; Utilities; Other Services; Wholesale Trade; Management of Companies & Support Services; Mining; Educational Services; Finance & Insurance; and Information.

The majority of the report’s key metrics, including the NMI, were down in April, including:

• business activity/production was up 2.1% to 55.5, still growing for the 117th month in a row;
• new orders were off 0.9% to 58.1, still growing for the 117th consecutive month;
• employment was down 2.2% to 53.7, growing for the 62nd consecutive month;
• supplier deliveries slowed to 50.5 (a reading above 50 indicates contraction), falling for the 40th consecutive month;
• prices decreased 3% to 55.7 and showed growth for the 23rd consecutive month; and
• inventories rose 1.5% to 55.5 shifting to growth from being flat in March

A common theme among ISM member respondents in the report focused on challenges in retaining and hiring employees, as the U.S. unemployment rate, at 3.6%, is at its lowest level over the ten years of the ongoing economic recovery.

“We have increased wages to comply with increases in government-mandated minimum-wage levels. In order to retain production employees, we are going to a weekly payroll system,” said an Agriculture, Forestry, Fishing & Hunting respondent. A healthcare & social assistance respondent added it is extremely difficult to fill direct care personnel positions.

ISM Non-Manufacturing Business Survey Committee Chair Tony Nieves said in an interview that expectations for the April NMI were for it to come in a few percentage points higher, with the caveat that it has been growing for an extended period and remained in a sustainable range without what he called “overheating.”

“Employment is a factor, too, as non-manufacturing is a very labor-intensive sector, with the April index down,” he said. “With low unemployment, it speaks volumes in that it makes it tough to have strong growth if you are lacking the employment resources. That, coupled with the other indexes that make up the composite, all factor in.”

Non-manufacturing’s overall health, said Nieves, is solid, adding that things are a long way from any meaningful signs of contraction, with all variables in place pointing to continued growth going forward, with the question of at what rate or level.

On a year-to-date basis, Nieves said that non-manufacturing is solid, as evidenced by the current 111-month stretch of growth.

“The last two years have been at a ‘really good strength’ compared to the 19 months prior that, which saw more slow and steady incremental growth, with some spikes here and there, but mostly at a low level and not doing anything too exciting, ” he said.  “There has been more strength over the last two years, and the first four months of 2019 were on a good positive trend and should stay that way, unless something derails it.”