Thursday, May 3, 2007

ISM Services Up

From the Institute for Supply Management:

ISM's Non-Manufacturing Business Activity Index in April registered 56 percent compared to the 52.4 percent registered in March, indicating a faster rate of growth in business activity in April. The implication is that non-manufacturing business activity is continuing to increase for the 49th consecutive month. Thirteen industries reported increased business activity, and two reported decreased activity for the month of April.

The industries reporting growth of business activity in April are: Arts, Entertainment & Recreation; Accommodation & Food Services; Transportation & Warehousing; Utilities; Information; Public Administration; Other Services*; Retail Trade; Real Estate, Rental & Leasing; Finance & Insurance; Construction; Educational Services; and Health Care & Social Assistance.

The industries reporting contraction of business activity in April are: Wholesale Trade; and Professional, Scientific & Technical Services.


Looking at an average of the last 4 months, the overall activity index is about 54, which puts the average in the expansion area.

Notice in the second paragraph above the large number of industries experiencing an expansion versus the number that are experiencing a contraction.

In addition, there were positive anecdotal comments about the overall economic situation:

* "Progressive improvement in the business cycle." (Transportation & Warehousing)
* "We are showing signs of recovery from bad news. Transactions are increasing faster than our normal seasonal increase." (Accommodation & Food Services)
* "Concerned about the rapid increase in energy cost." (Professional, Scientific & Technical Services)
* "The level of business is maintaining an even level at this time. Capital projects are ramping upwards." (Educational Services)
* "Sales in the first three months of the year are slower than expected while pressure to lower prices is increasing." (Wholesale Trade)


These quotes indicate business is getting better and at a faster than expected rate.

The only negative to this report was the prices component:

Prices paid by non-manufacturing organizations for purchased materials and services increased in April for the 47th consecutive month. ISM's Non-Manufacturing Prices Index for April is 63.5 percent, 0.2 percentage point higher than March's index of 63.3 percent. In April, the percentage of respondents reporting higher prices increased by 4 percentage points to 42 percent as compared to March. The percentage indicating no change decreased from 58 percent in March to 54 percent in April. The percentage of respondents noting prices decreased remained the same at 4 percent in April.


While the increase was small (.2), it was still an increase. In addition, notice this is the 47th month of prices paid increases. The increases in productivity for this expansion may be enough to absorb those increases, but the Federal Reserve will still be looking at the overall increase next week.