US: ISM Non-Mfg Index

Tue May 05 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Composite Index - Level 56.5 54.0 to 57.5 57.8 56.5

The ISM non-manufacturing index extended its strong and unusually stable trend, coming in at 57.8 for April vs a very solid 56.5 in March. Over a 10-month stretch, this index has held between 58.8 on the high side to 56.5 on the low side.

New Orders are very strong, at 59.2, as are backlog orders, at 54.5 which is unusually strong for this reading. Strong orders point to future hiring which is already very strong, at 56.7. Price data, unlike this morning's PMI services index, do not show any pressure.

Otherwise, however, there is plenty of upward pressure registered in this report, one that points to a sizable rebound for the economy during the second quarter.

Market Consensus Before Announcement
The ISM non-manufacturing index is expected to hold steady, at a very solid 56.5 and in line with the indication from the flash PMI services index. New orders have been consistently solid in the ISM report with backlog orders also on the rise.

The non-manufacturing ISM surveys more than 375 firms from numerous sectors across the United States. This index covers services, construction, mining, agriculture, forestry, and fishing and hunting. The non-manufacturing composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the non-manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation. A reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries. However, slower deliveries are a plus for the economyindicating demand is up and vendors are not able to fill orders as quickly.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM non-manufacturing survey's composite index, investors will know what the economic backdrop is for the various markets. The non-manufacturing composite index has four equally weighted components: business activity, new orders, employment, and supplier deliveries. The ISM did not begin publishing the composite index until the release for January 2008. Prior to 2008, markets focused on the business activity index. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. While the ISM manufacturing index has a long history that dates to the 1940s, this relatively new report goes back to 1997.