US: ISM Non-Mfg Index

Wed Apr 04 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous
Composite Index - Level 59.0 57.0 to 60.0 58.8 59.5

Unusual strength eased a bit in March for ISM's non-manufacturing sample as the index came in near expectations at 58.8 vs 59.5 and 59.9 in the two prior months. Growth in new orders remains very strong though the index is now under 60, at 59.5, for the first time since December. A key positive, however, and one for the outlook on Friday's employment report is a 1.6 point rise in employment to 56.6 which is strong for this reading.

Capacity stress in this sample is evident with supplier deliveries lengthening very sharply, up 3.0 points to 58.5, and input prices up a half point to a very hot 61.5 for a third straight plus 60 showing.

This report, in distinction to the services PMI released earlier this morning, includes mining, which was the strongest of 17 sectors in the March report, and also construction which includes specific comments on tariff effects, that price volatility for construction-related materials including steel and aluminum are disrupting business plans.

The employment result is strong as is once again the breadth of this report, underscored by the industry score which shows 15 reporting monthly growth and only 2 reporting contraction.

Market Consensus Before Announcement
The ISM non-manufacturing index toyed with the 60 level in January and February but, at a consensus 59.0, isn't expected to breakthrough in March. Yet order readings, whether for new orders or export orders or backlogs, have all been building and look certain to support business activity and employment in the March report.

The Institute For Supply Management surveys more than 375 firms from numerous sectors across the United States for its non-manufacturing index. 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 economy -- indicating 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.