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Friday, August 1, 2014

Uneven Results in ISM April Indices Are a Drag on Economic Growth

Economic activity continues to grow, but it is slow, with major indices falling in the 51 to 55 range and categories posting mixed monthly performance.

The national monthly non-manufacturing index (NMI) for April, released last week by the Institute for Supply Management (ISM), was 53.1, down 1.3 points from March, despite posting the 40th consecutive month of growth.

An index above 50 means the economy is growing, while performance below 50 means activity is contracting.

Business activity last month was 55 percent. This was the 45th consecutive month of growth, ISM reports, but a decline of 1.5 points from March.

The new orders index dipped 0.1 point to 54.5, while the employment index fell 1.3 points to 52. Employment rose for the ninth consecutive month, ISM notes, but at a slower pace than in March.

ISM logoOf significance, the prices index decreased to 51.2 in April, from 55.9 in March, which means that although prices continued to rise last month, it was at a much lower rate. Commodity products that rose in price in April included natural gas, skilled labor, software development, and maintenance services. Among the commodities that dropped in price were computers and peripherals, copper products, some diesel fuels, and gasoline.

The view presented by the NMI is one of an economy that remains stuck in low-growth mode.

Comments from survey respondents indicate they are “mostly positive about business conditions,” ISM says. Nevertheless, “cost management and revenue pressures are areas of concern,” the organization says — a point that has been expressed in recent procurement studies.

For comparison, ISM released manufacturing index numbers. Here, the index in April was 50.7, a 0.6-point decline from March. The index of new manufacturing orders rose 0.9 points to 52.3 in April, and supplier deliveries increased 1.5 points to 50.9 — a nudge that put results in positive territory. Prices dropped to 50 in April, from 54.5 in March. Inventories declined 3 points to 46.5, while order backlogs rose 2 points to 53.

So the manufacturing economy seems in some months to give back almost as much as it gains in other months, a sign that growth is uneven and caution is part of every producer’s strategy.

 

 

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