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Purchasing Managers Index — Nonmanufacturing

April 5, 2017

The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of non-manufacturing firms — which largely consists of services. The index took a breather in March and fell 4.7 points to 58.99 after having risen 3.3 points in February to 63.6 which was  the highest level since October 2015.   At its March level the ISM group estimates GDP growth of 2.4%.

Anthony Nieves, the chair of the ISM Non-Manufacturing Business Survey Committee said, “The sector continues to reflect growth; however, the rate of growth has declined since last month. The majority of respondents’ comments indicate a positive outlook on business conditions and the overall economy. There were several comments about the uncertainty of future government policies on health care, trade and immigration, and the potential impact on business.”

The orders component  fell 2.3 points from 61.2 to 58.9.  This series still remains quite high and suggests that the service sector will continue to grow briskly for some time to come.  Comments from respondents include: “New clients on board” and “Spending new budgets.”

The ISM non-manufacturing index for employment fell 4.6 points in March to 51.6 after having risen 0.5 point in February.  However, this series has been fairly volatile in other recent months with big increases followed by big declines a rather common occurrence.  Jobs growth should continue in upcoming months at about the same pace we  have seen of roughly 200 thousand per month. Comments from respondents include: “Adding new positions to meet the demands of new business” and “Hiring freeze that we had last month was lifted in certain areas.”

Finally,  the price component fell 4.2 points in March to 53.5 after having declined 1.3 points in February.  Thus, prices still rose in March but at a slightly slower pace than in February.  Thirteen of the 14 industries surveyed reported higher prices in March.  Higher inflation lies ahead.

Stephen Slifer

NumberNomics

Charleston, SC


Purchasing Manager’s Index

April 3, 2017

The Institute for Supply Management’s index of conditions in the manufacturing sector was strong again in March.  The index declined 0.5 point in March to 57.2. after having risen 1.7 points in February.  The February level was the highest level for this index in more than two years (August 2014).  Clearly manufacturing activity is beginning a slow but gradual recovery.  If the PMI for March is annualized it corresponds to a 4.4% increase in GDP growth.  If one uses the January through March average PMI it would imply a 4.3% increase in GDP growth this year.

It is important to recognize that the overall index is the compilation of a number of different components — production, orders, employment, supplier deliveries, inventories, prices, the backlog of orders, exports, and imports.

The orders component declined 0.6 point in March to 64.5 after having jumped 4.7 points in February.  This series has risen 13 points in the past four months and is essentially at its highest level since December 2013.  It appears that orders have really begun to accelerate which will boost factory production in the months ahead.

In addition to orders, actual production has behaved in a similar manner.  Thus, the pace of production has already begun to climb and given the rise in orders it should gather momentum as we move throughout 2017.  The production index declined 5.3 points in March to 57.6 after having jumped 1.5 points in February.  A level above 51.4 is consistent with an increase in the Federal Reserve’s industrial production figure.

The employment index jumped 4.7 points in March to 58.9 after having declined 1.9 points in February.   This is the highest level for this index since  June 2011.  The employment index had been right about at the break-even point of 50.0 for almost a year but has now broken out to the upside in the  past four months. While the economy is currently cranking out about 170 thousand jobs per month, the factory sector thus far has produced few of them.  The jobs are coming from services and construction.  Hopefully, 2017 will bring with it at least some moderate increases in factory jobs.

The backlog of orders rose 0.5 point in March to 57.5 after having surged 7.5 points in February.  The backlog had been  fairly steady for a long while, but now orders are rising and the backlog has begun to climb which will encourage still faster production in the months ahead..

The prices paid component rose 2.5 points in March to 70.5 after having declined 1.0 point in February.  this is the highest reading since May 2011.  Survey respondents reported that prices rose for 16 of the 18 manufacturing prices surveyed so the run-up in commodity prices is widespread and not just oil .  This is an important development.  Prices had been falling steadily  since October 2014 (when oil prices began to fall) which pulled down the CPI and PPI measures of inflation.  Now that process has clearly come to an end and will result in somewhat faster inflation readings in the months ahead.

We believe that the economy is  expanding at a moderate pace.  We expect GDP growth of 2.4% in 2017 and 2.7% in 2018.  During that period of time the manufacturing sector will once again begin to expand slowly.

Stephen Slifer

NumberNomics

Charleston, SC