April 2015 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that growth of economic activity in the U.S. manufacturing sector was unchanged in April. The PMI registered 51.5%, the same reading as in March -- its lowest reading since May 2013. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. The most apparent changes included increases in the new orders, exports and imports sub-indexes, and contraction in employment. 

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Wood Products expanded in April, thanks entirely to new and backlogged orders. Paper Products also expanded, with support among new and backlogged orders, production, and exports.

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- quickened in April. The NMI registered 57.8%, 1.3 percentage points above the March reading 56.5%. The business activity sub-index rose noticeably, and new orders slightly less so. However, exports contracted (collapsing from 59 to 48.5) and import growth markedly slowed. “The majority of respondents indicate that there has been an uptick in business activity due to the improved economic climate and prevailing stability in business conditions.” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. 

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All three service industries we track reported expansion in April. The new orders sub-index was once again the most consistent source of strength.

The only relevant commodity up in price was paper. Oil was down in price. Some reported fuel (both gasoline and diesel) as cheaper, others as more expensive. No relevant commodities were in short supply.

ISM’s and Markit’s surveys exhibited some divergence in April. Both Markit’s Manufacturing and Services PMIs reflected some moderation in the rate of growth.

Comments from Chris Williamson, Markit’s chief economist, are presented below:

Manufacturing -- “With manufacturing output growth slowing to the weakest seen so far this year and exports falling for the first time since November, the survey results raise worries that the dollar’s appreciation is hurting the economy.

“The slowing in the economy is accompanied by a renewed weakening of price pressures, linked to the exchange rate bringing down the cost of imports. Input prices showed one of the steepest falls seen since the recession, a cost-saving which producers often passed on to customers. Prices charged rose at the slowest rate seen for almost three years.

“The weakening growth trend and fall in price pressures add to a growing clutch of disappointing numbers which suggest the Fed will err on the side of caution and hold off from rate hikes until a clearer picture emerges of the economy’s health. Any policy tightening therefore looks likely to be deferred until at least September, but the fact that both manufacturing and services continue to grow at reasonably robust rates at the start of the second quarter suggest that rate hikes towards the end of the year should not be ruled out.”

Services -- “Robust service sector growth adds to evidence that the economy is far from stalling, as indicated by the GDP numbers seen at the start of the year, supporting the Fed’s view of the economy growing at a ‘moderate’ rate.

“Together with the expansion signaled by the manufacturing survey, the service sector PMI so far points to the economy growing at an annualized rate of 3% in the second quarter, representing a nice rebound from the first quarter’s soft-patch.

“Hiring has also remained resilient, boding well for monthly non-farm payroll growth to return above 200,000.

“Price pressures have also ticked higher, suggesting we may see some further upwards pressure on core inflation in coming months.

“The robust growth and hiring, as well as the upturn in prices, keeps alive the possibility of the Fed hiking rates later this year, perhaps as early as September if the data flow impresses in coming months.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.