| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 51.7 | 50.0 to 52.5 | 51.9 | 51.2 |
Highlights
Business activity in the US service sector was in positive territory for the fourth straight month in April, thanks to a slight rebound in new orders amid the reopening of materials production and improving supply chains, according to the latest survey by the Institute for Supply Management (ISM) released Wednesday.
Overall, respondents are cautiously optimistic about the outlook for their business in the face of a possible recession this year, but the release of the ISM's semi-annual survey on May 8 should provide a clearer picture, Anthony Nieves, chair of the ISM Services Business Survey Committee, told reporters.
The main index, which shows the directional change of economic activity, inched up 0.7 percentage points to 51.9 in April after slipping to 51.2 in March from 55.1 in February and surging 6.0 points to 55.2 in January and plunging 6.3 points to 49.2 in December, which was the first contraction since May 2020, when it registered 45.4.
The index came in slightly firmer than the median economist forecast of 51.7. It is well above the recent low of 41.7 hit in April 2020, and 40.1 in March 2009, which is the lowest since the inception of the Services PMI in 2008. But it also remains well below the record high of 68.4 reached in November 2021.
"There has been a slight uptick in the rate of growth for the services sector, due mostly to the increase in new orders and ongoing improvements in both capacity and supply logistics," Nieves said in a statement."The majority of respondents are mostly positive about business conditions; however, some respondents are wary of potential headwinds associated with inflation and an economic slowdown."
Nieves has said the service sector seems to be on a path of steady incremental growth, and that April-June would be a telltale quarter to assess the sustainability of the sector improvement.
Asked how service providers are seeing the risk of recession, he told reporters that there are indications of a possible recession, such as the inverted yield curve. High interest rates after last year's aggressive credit tightening by the Federal Reserve is weighing on the residential real-estate market, he added.
"But if you look at all of the components, we still have low unemployment and we still have GDP growth," he said."One concern is on how inflation is going to impact business levels going forward."
"The majority (of the respondents) are still positive and we are still seeing an incremental growth," Nieves said."I don't want to sound overconfident. It's just that there are concerns. Companies tend to prepare for those headwinds."
The ISM will release the results of its latest semi-annual survey on May 8. In the last survey released in December, supply management executives at U.S. manufacturers and service providers continued to expect their revenues would grow in 2023 despite higher borrowing costs and easing but elevated inflation. At the same time, supply managers appeared to be uncertain about the outlook.
Of the four sub-indexes that directly factor into the services PMI, growth in business activity slowed for the third straight month; the pace of increase in new orders recovered only a fraction of the previous month's plunge; employment growth slowed to just above the key 50 level; and the supply deliveries index ticked up, indicating the pace of recovery in delivery speed slowed slightly.
The business activity index slipped to a three-year low of 52.0, down 3.4 percentage points from 55.4 in March, when it fell 0.9 point to 55.4, following a 4.1-point dip to 56.3 in February and a 6.9-point rebound to 60.4 in January. The latest figure is the lowest since the early phase of the global pandemic (41.2 in May 2020 and 26.1 in April 2020).
The new orders index expanded in April for the fourth consecutive month after contracting in December for the first time since May 2020. The figure of 56.1 is 3.9 points higher than the March reading of 52.2 but it failed to recover the 10.4-point plunge that month.
"Business activity remains relatively flat compared to last month," a wholesale trader told the ISM."Inventories are much more balanced versus demand, and supply chains are near full recovery. The firm said it is"optimistic about demand and business activity in later spring and summer months."
The supplier deliveries index -- the only ISM index that is inversed -- registered 48.6 in April, 2.8 points higher than the 45.8 recorded in March."Looking back beyond the past few months, this month the index has reflected the fastest supplier delivery performance since December 2015, when it registered 48.5," the ISM said. The March reading of 45.8 indicated the fastest April 2009, when the index was at 45.5. A reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.
The employment index stayed above the key 50 line in April but posted the second straight monthly drop, falling 0.5 point to 50.8, after slipping 2.7 points to 51.3 in March and rising 4.0 points to 54.0 in February. The information and technology industry has been reducing payrolls while some others are finding it hard to find qualified workers."Employment continues to be a mixed bag," Nieves told reporters.
Inflationary pressures have eased in recent months but the prices index edged up 0.1 point to 59.6 in April, reflecting shortages of some commodities. The index had dropped 6.1 points in March to 59.5, the lowest since July 2020 (57.5), after falling 2.2 points to 65.6 in February. The index is well below its record high of 83.2 hit in April and February 2022.
The prices for most commodities are stabilizing as firms are reopening production and supply chains are improving while fuel costs have been fluctuating, Nieves said, adding that comments from the construction industry showed that some suppliers are holding back output to help shore up product prices.
"High mortgage rates continue to weigh on new residential construction," a contraction firm told the ISM survey."With demand down, material suppliers are curtailing production to maintain pricing levels."
"Material prices continue to decline -- except for energy and chemicals -- but are still above pre-pandemic levels," a utilities service provider said."Inflation and recession uncertainties still weigh on decisions."
Overall, respondents are cautiously optimistic about the outlook for their business in the face of a possible recession this year, but the release of the ISM's semi-annual survey on May 8 should provide a clearer picture, Anthony Nieves, chair of the ISM Services Business Survey Committee, told reporters.
The main index, which shows the directional change of economic activity, inched up 0.7 percentage points to 51.9 in April after slipping to 51.2 in March from 55.1 in February and surging 6.0 points to 55.2 in January and plunging 6.3 points to 49.2 in December, which was the first contraction since May 2020, when it registered 45.4.
The index came in slightly firmer than the median economist forecast of 51.7. It is well above the recent low of 41.7 hit in April 2020, and 40.1 in March 2009, which is the lowest since the inception of the Services PMI in 2008. But it also remains well below the record high of 68.4 reached in November 2021.
"There has been a slight uptick in the rate of growth for the services sector, due mostly to the increase in new orders and ongoing improvements in both capacity and supply logistics," Nieves said in a statement."The majority of respondents are mostly positive about business conditions; however, some respondents are wary of potential headwinds associated with inflation and an economic slowdown."
Nieves has said the service sector seems to be on a path of steady incremental growth, and that April-June would be a telltale quarter to assess the sustainability of the sector improvement.
Asked how service providers are seeing the risk of recession, he told reporters that there are indications of a possible recession, such as the inverted yield curve. High interest rates after last year's aggressive credit tightening by the Federal Reserve is weighing on the residential real-estate market, he added.
"But if you look at all of the components, we still have low unemployment and we still have GDP growth," he said."One concern is on how inflation is going to impact business levels going forward."
"The majority (of the respondents) are still positive and we are still seeing an incremental growth," Nieves said."I don't want to sound overconfident. It's just that there are concerns. Companies tend to prepare for those headwinds."
The ISM will release the results of its latest semi-annual survey on May 8. In the last survey released in December, supply management executives at U.S. manufacturers and service providers continued to expect their revenues would grow in 2023 despite higher borrowing costs and easing but elevated inflation. At the same time, supply managers appeared to be uncertain about the outlook.
Of the four sub-indexes that directly factor into the services PMI, growth in business activity slowed for the third straight month; the pace of increase in new orders recovered only a fraction of the previous month's plunge; employment growth slowed to just above the key 50 level; and the supply deliveries index ticked up, indicating the pace of recovery in delivery speed slowed slightly.
The business activity index slipped to a three-year low of 52.0, down 3.4 percentage points from 55.4 in March, when it fell 0.9 point to 55.4, following a 4.1-point dip to 56.3 in February and a 6.9-point rebound to 60.4 in January. The latest figure is the lowest since the early phase of the global pandemic (41.2 in May 2020 and 26.1 in April 2020).
The new orders index expanded in April for the fourth consecutive month after contracting in December for the first time since May 2020. The figure of 56.1 is 3.9 points higher than the March reading of 52.2 but it failed to recover the 10.4-point plunge that month.
"Business activity remains relatively flat compared to last month," a wholesale trader told the ISM."Inventories are much more balanced versus demand, and supply chains are near full recovery. The firm said it is"optimistic about demand and business activity in later spring and summer months."
The supplier deliveries index -- the only ISM index that is inversed -- registered 48.6 in April, 2.8 points higher than the 45.8 recorded in March."Looking back beyond the past few months, this month the index has reflected the fastest supplier delivery performance since December 2015, when it registered 48.5," the ISM said. The March reading of 45.8 indicated the fastest April 2009, when the index was at 45.5. A reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.
The employment index stayed above the key 50 line in April but posted the second straight monthly drop, falling 0.5 point to 50.8, after slipping 2.7 points to 51.3 in March and rising 4.0 points to 54.0 in February. The information and technology industry has been reducing payrolls while some others are finding it hard to find qualified workers."Employment continues to be a mixed bag," Nieves told reporters.
Inflationary pressures have eased in recent months but the prices index edged up 0.1 point to 59.6 in April, reflecting shortages of some commodities. The index had dropped 6.1 points in March to 59.5, the lowest since July 2020 (57.5), after falling 2.2 points to 65.6 in February. The index is well below its record high of 83.2 hit in April and February 2022.
The prices for most commodities are stabilizing as firms are reopening production and supply chains are improving while fuel costs have been fluctuating, Nieves said, adding that comments from the construction industry showed that some suppliers are holding back output to help shore up product prices.
"High mortgage rates continue to weigh on new residential construction," a contraction firm told the ISM survey."With demand down, material suppliers are curtailing production to maintain pricing levels."
"Material prices continue to decline -- except for energy and chemicals -- but are still above pre-pandemic levels," a utilities service provider said."Inflation and recession uncertainties still weigh on decisions."
Market Consensus Before Announcement
After a much weaker-than-expected 51.2 in March, the ISM services index in April is expected to improve only slightly to 51.7.
Definition
Producing a monthly composite on general activity tracked in volumes, the Institute for Supply Management surveys several hundred service-providing firms from 16 industries (construction and mining are included). The services 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 services 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.
Description
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 services index, investors will know what the economic backdrop is for the various markets. The services index is a composite of four equally weighted components: business activity, new orders, employment, and supplier deliveries. 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 report goes back to 1997. Note that in 2020 the ISM changed the name of the report to services from non-manufacturing though it continues to track two key goods producing industries: construction and mining.
