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Fast Comment USISM Non-manufacturing surprisingly low in April

  1. ISM Non-manufacturing at this year low
  2. Orders disapointing, but price pressure receding fast
  3. Stable growth oulook - so far
ISM Non-manufacturing unexpectedly fell to 53.5 from 56.0 in March.
Today’s ISM Non-manufacturing report surprised on the downside when the composite index decreased to 53.5 from 56.0 in March. This was lower the consensus expectation (at 55.3) and presumably lower than the likely increased expectations after the ISM manufacturing report earlier this week. Thus, the index reached the lowest level this year and returned to approximately the historical average.
New orders and Employment Index down…but also the price index
Looking into the detail it was broad based valuations of Business activity, new orders and employment. It was especially disappointing that the forward looking new orders fell to a 6 months low. On the other hand we got a steep dive in price pressure signals, when the prices paid index dived to the lowest point since June 2009 reflecting that cost concerns have receded significantly. Finally it was especially disappointing to see the employment index soften, although at 54.2 (previously 56.7) it still reflects nice expansion. The combined two ISM reports confirms that the employment growth has moderated lately, and per se does not foresee much improvement in tomorrow’s payrolls (see first graph). Today’s initial jobless claims on the other hand offered some comfort on the employment picture, when it fell to a one month low and it adds to the view that the recent increase were influenced by seasonal problems related to the Easter. Although today’s numbers does not apply to the reporting period of the payroll report.
Confirms continued moderate growth
Even though one can fear that the service sector growth is moderating already, the combined April ISM reports confirms that Q1 so far maintained moderate growth (see second graph). It is especially important that that the dominant service sector holds up for our continued moderate growth forecast. It is thus especially important that the service sector, based primarily on domestic demand, complements the improvement on the labor market, further working the positive spiral securing sustainable growth. Especially in a period where the height of economic uncertainties stems from abroad.

Employment index falling but still ok
Source: Reuters EcoWin

ISM so far remains comparable with stable growth

Source: Reuters EcoWin


Rasmus Gudum-Sessingø

Senior Economist


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