Today was a bad hair day for those who believed the economy was taking off like a rocket. First, mediocre ADP jobs numbers – and now the Institute for Supply Management (ISM) Non-Manufacturing Survey of Purchasing Managers in April 2011 fell 4.5%.
This 4.5% fall puts this survey at 52.8 and close to the dreaded 50 which indicates a non-growing sector.
Did the economic growth slow in April? Econintersect’s April forecast says no – but in the next 30 days hard data will start flowing in to show the reality. Already, April has had record auto sales in the USA.
The ADP employment numbers released today are barely good – but employment dynamics are based on economic pressures which occurred months ago. Hiring people is based on long term positive dynamics – not dynamics occurring in April. Further, employment dynamics are driven by small business – and unlikely they are participating in the ISM surveys.
Econintersect analyzed the ISM Manufacturing survey earlier this week (analysis here).
With 90% of the employment in the service sector, it is important to understand – ahead of actual data – what is going on. The non-manufacturing survey for the Institute For Supply Management is a relatively new survey – and no pundit yet has figured out to what it relates. Although anything going up is good, Econintersect has tried to find something it tracks (analysis here).
Econintersect sees new orders and backlog as the important elements of surveys as they point better to economic direction then the other elements. Looking at new orders, you can see the fluctuations and new orders does appear to be similar in the last 4 months – the ISM is simply a very noisy index.
Backlog – a very good indicator of real economic dynamics, continues to show a strong growth.
Overall, there is little negative I can find in this report – other then the inability of ISM to properly quantify opinion. This opinion is supported by the ISM Summary:
INDUSTRY PERFORMANCE (Based on the NMI)
The 17 industries reporting growth in April based on the NMI composite index — listed in order — are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Mining; Management of Companies & Support Services; Information; Other Services; Wholesale Trade; Utilities; Public Administration; Accommodation & Food Services; Construction; Real Estate, Rental & Leasing; Educational Services; Health Care & Social Assistance; Transportation & Warehousing; Professional, Scientific & Technical Services; and Finance & Insurance. The only industry reporting contraction in April is Retail Trade.
WHAT RESPONDENTS ARE SAYING …
- “Business conditions [remain] unchanged. No supply impact from the Japan earthquake/tsunami, but continue to track with the supply base.” (Management of Companies & Support Services)
- “Revenues are picking up slowly, but the growth is positive as compared to last month and the same month last year.” (Real Estate, Rental & Leasing)
- “Looking forward with reserved caution. Cost of goods by this fall are a big worry.” (Accommodation & Food Services)
- “Continuing economic uncertainty will curtail or delay project spending for the immediate future.” (Educational Services)
- “Fuel prices continue to be challenging and in addition to shipping, are influencing the cost of materials.” (Public Administration)
- “We are seeing price increases in many areas, and the lead times are stretching out. Our business activities are improving at a moderate rate.” (Wholesale Trade)
No Gertrude, the USA economy is not a lightning rod for growth. But it is likely hard data will show this survey is overly pessimistic.
ADP Publishes Painfully Low Employment Growth in April 2011 by Steven Hansen
ISM April 2011 Manufacturing Survey Continues to Show Growth by Steven Hansen