Wednesday, 22 of May of 2019

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Category » Purchasing Managers Index

Purchasing Managers Index — Nonmanufacturing

May 3, 2019

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 business activity index rose 2.1 points in April to 59.5 after having fallen 7.3 points in March.  The February level of 64.7 was the highest level for this index since January 2004.      In April 16 of 18 service-sector  industries  reported expansion.  Good, solid, broad-based growth.  At its April level the non-manufacturing index equates to GDP growth of 2.4%.

Typically, large changes in the overall index are led by orders which, in this case, fell 0.9 point to 58.1 after having declined 6.2 points in March.   At 58.1 this level portends robust growth in services in the months ahead.  Comments from respondents include: “Driven by new customers” and “Major orders received and booked; quoted last year.”

The ISM non-manufacturing index for employment fell 2.2 points in April to 53.7 after having risen 0.7 point in March.  Comments from respondents include: “Difficult to fill open positions and retain entry-level personnel” and “Recent vacancies have been difficult to fill. Tight labor market.”   Jobs growth should continue in upcoming months at about the same pace we  have seen of roughly 200 thousand per month.

Finally,  the price component fell 3.0 points in April to 55.7 after having risen 4.3 points in March.   Eleven non-manufacturing industries reported an increase in prices paid during the month.  At its current level of 55.7, prices are rising at a moderate pace.

Stephen Slifer

NumberNomics

Charleston, SC


Purchasing Manager’s Index

May 1, 2019

The Institute for Supply Management’s index of conditions in the manufacturing sector fell 2.5 points in April to 52.8 after having risen 1.1 points in March.   Clearly the stock market decline, combined with slower growth from China and continuing concern about tariffs, made manufacturers nervous late last year and in the early part of this year.  But while the PMI may have fallen, the decline in recent months was from a very high level.    The PMI for April still corresponds to a 2.9% increase in GDP growth.

Timothy R. Fiore,  Chair of the ISM’s Manufacturing Business Survey Committee indicated that “Comments from the panel reflect continued expanding business strength, but at the softest levels since the fourth quarter of 2016.”  He also noted that “Exports orders contracted for the first time since February 2016. The PMI trade elements are in contraction territory.  The manufacturing sector is expanding, but at recent historic lows,”

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 fell 5.7 points in April to 51.7 after having risen 1.9 points  in March.  Customer demand softened quite notably late last year as stock market volatility, slower growth in China and concern about tariffs took a toll, but  demand returned in January, February, and March with readings in the mid 50’s.    An orders index above 52.4  is, over time, consistent with an  increase in the Census Bureau’s series on factory orders.

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In addition to orders, the production component fell 3.5 points in April to 52.3 after having risen 1.0 point in March.    A level above 51.5 is consistent with an increase in the Federal Reserve’s industrial production figure.  The ISM reported noted that, “ “Production expansion continued in April, but at a slower pace compared to March, recording its lowest level since August 2016, when the index registered 49.6 percent.”

The employment index fell 5.7- points in April to 51.7 after having jumped 5.2 points in March.  It has obviously been bouncing around from month to month.  The ISM report said the following:  “Employment continued to expand, but at lower levels compared to March. Retention issues and sourcing of skilled and professional labor were noted by respondents as continuing drags on production performance,” While the economy is currently cranking out about 190 thousand jobs per month, the factory sector thus far accounts for only about 20 thousand of them.  Most of the jobs are coming from services and construction.  An ISM employment index above 50.8 is consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.

The backlog of orders climbed by 3.5 points in April to 53.9 after having fallen 1.9 points in March.  Fiore said “Backlogs expanded during April, and at higher levels compared to March due to declines in production output. Despite new orders softening, backlogs achieved their highest level of performance since November 2018, when the index registered 56.4 percent,”

The prices paid component fell 4.3 points in April to 50.0 after having jumped 4.9 points in March.   ISM officials noted that,  “Prices stabilized in April, primarily due to more respondents reporting price declines. Increases were reported in copper, oil, and electronic components. Steel prices remain at stable levels. Shortages continue for passive electronic components.”  A price index level above 52.4 is consistent with an increase in the BLS producer prices index for intermediate materials.  Hence, it appears the PPI may have fallen slightly in April.

We believe that the economy is  expanding at a relatively robust pace.  We expect GDP growth of 2.7% in 2019 after having risen 3.0% last year.  During that period of time the manufacturing sector will continue to expand at a moderate pace.

Stephen Slifer

NumberNomics

Charleston, SC