April 2010 ISM Reports: Manufacturing Sector Gaining, and Service Sector Holding, Head of Steam

The Institute for Supply Management’s (ISM) reports on the manufacturing and service sectors provide a more up-to-date view of conditions than either the Federal Reserve’s report on industrial production and capacity utilization or the U.S. Census Bureau’s report on manufacturers’ shipments, inventories and orders.

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Economic activity in the manufacturing sector expanded in April for the ninth consecutive month according to Norbert Ore, chair of ISM’s Manufacturing Business Survey Committee. "The rate of growth as indicated by the Purchasing Managers’ Index [60.4 percent] is the fastest since June 2004…Manufacturers continue to see extraordinary strength in new orders, as the New Orders Index has averaged 61.6 percent for the past 10 months. The signs for employment in the sector continue to improve as the Employment Index registered its fifth consecutive month of growth. Overall, the recovery in manufacturing continues quite strong, and the signs are positive for continued growth."

Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee, indicated that – with the Non-Manufacturing Index registering 55.4 percent – the service sector expanded at the same pace in April as in March.

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The performance of individual industries that are at least somewhat related to the forest products sector improved “across the board” during April. All industries reported growth in new orders, except for Agriculture, Forestry, Fishing & Hunting; also, all but Real Estate, Rental & Leasing reported stable or growing employment. Only Paper Products reported growth in new export orders.

Inputs cost more in April, although the price increases were smaller than in March. Commodities whose prices rose in April included fuel, corrugated containers, pulp, envelopes, lumber and wood products, OSB, paper, and paper products.

Although present activity appears quite robust, its continued strength will depend heavily upon the dollar’s performance against other currencies, and the rate at which the overhang of housing inventory can be cleared away.