ISM Non-Manufacturing: Contraction In April

The Institute of Supply Management (ISM) has now released the April Non-Manufacturing Purchasing Managers' Index (PMI), also known as the ISM Services PMI. The headline Composite Index is at percent 41.8, down 10.7 from 52.5 last month. Today's number came in above the Investing.com forecast of 36.8 percent.

Here is the report summary:

“The NMI® registered 41.8 percent, 10.7 percentage points lower than the March reading of 52.5 percent. This reading represents contraction in the non-manufacturing sector and is the NMI®’s lowest since March 2009 (40.1 percent). The Business Activity Index fell 22 percentage points from March’s figure, registering 26 percent — the lowest reading for that index since the debut of the Non-Manufacturing ISM® Report On Business® in 1997. The New Orders Index registered 32.9 percent, 20 percentage points below the reading of 52.9 percent in March. The Employment Index decreased to 30 percent, 17 percentage points below the March reading of 47 percent." [Source]

Unlike its much older kin, the ISM Manufacturing Series, there is a relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows the Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 26.0 percent is down 22 from a seasonally adjusted 48.0 the previous month.

For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualize the short-term trends.

Theoretically, this indicator should become more useful as the time frame of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains our intention to keep this series on the radar.

Here is a table showing the trend in the underlying components.