The ISM Non-Manufacturing Index Declined to 55.5 in April


Implications:  Activity in the service sector continues to grow at a healthy pace, and the outlook remains bright.  Fifteen of eighteen sectors reported growth in April, while no industries reported contraction.  And growth for the month would have been faster, but multiple respondents continue to report difficulties in finding qualified labor to fill open positions.  In other words, the April slowing in the pace of growth (remember, levels above 50 represent growth, so the decline in April represents continued growth but at a slower pace than in March) is nothing to worry about, and the expansion remains on track. It's a lack of supply, not demand, that is the primary drag on faster growth. The two most forward-looking indices – new orders and business activity – moved in opposite directions in April, but both remain at very healthy levels.  The new orders index declined to 58.1 from 59.0, as fifteen industries reported rising orders and two (retail trade and real estate) reported contraction.  Business activity, meanwhile, picked up in April, rising to 59.5 from 57.4, as respondents noted strong consumer demand and a growing customer base.  Add in a combination of backorders that still need to be filled, as well as manufacturers already running at or near capacity, and both measures should remain elevated in the coming months.  Companies are investing, but it takes time for new capacity to come online.  Shortages are impacting prices too, which continued to rise in April.  Qualified labor (most notably in construction) continues to represent one of the largest shortages companies are reporting.  Despite the labor shortage and a reported slowdown in the pace of hiring activity in April, with the employment index falling to 53.7 from 55.9 in March, this morning's employment report shows the labor market is quite healthy indeed.  So while the April ISM services reading did decline to the lowest reading since late 2017, it's nothing to worry about. The fundamentals remain strong.   

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Posted on Friday, May 3, 2019 @ 12:05 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.