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Business Activity, New Orders Drive US Service Economy: ISM

H.S. Borji
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Business Activity, New Orders Drive US Service Economy: ISM

The US service economy accelerated at a faster rate in April, with overall activity rising at the fastest rate since early 2008.

The Institute for Supply Management’s gauge of national service activity rose from 53.1 to 55.2. A median estimate of market analysts called for a gain of 1 percentage point. The US service economy has been above the 50 mark that separates expansion from contraction for 51 consecutive months.

Fourteen non-manufacturing industries expanded last month, led arts, entertainment & recreation, wholesale trade, and agriculture, forestry, fishing & hunting. Of the four industries that declined in April, mining was the hardest hit for the second straight month, followed by health care & social assistance, and professional, scientific & technical services.

ISM’s gauge of business activity surged 7.5 percentage points to 60.9, with 14 industries reporting gains. Thirty-seven percent of survey panelists said business activity had increased in April, up from just 31 percent who said the same in March. At the start of the year only 27 percent of panelists had said business activity was higher, ISM data showed.

Managers’ appraisal of the current environment was much more favourable this month. Sentiment in March was mixed, as the US economy began to thaw from the winter freeze.

“General business conditions are improving,” said one manager from the information industry.

“Traffic and sales are up due to break in weather,” said another from accommodation & food services.

“Market conditions are generally steady,” said one respondent from the finance & insurance sector.

Export demand expanded in April after three consecutive months of decline, ISM data showed. Only five industries reported an increase in new export orders, led by construction, real estate, and rental & leasing. The new export orders sub-index rose 7.5 percentage points to 57.

Employment expanded for the second consecutive month, albeit at a slower pace than in March. The employment index fell 2.3 percentage points to 51.3, with 13 industries reporting increased employment.

Like ISM, Markit Group also reported today that the pace of employment growth in April had declined sharply. According to Markit, the pace of job creation fell to a 13-month low at the start of the second quarter. This contradicts the Labor Department’s official report released on Friday showing the US economy generated 288,000 jobs in April. Government data showed service sector hiring rose at the fastest pace in 11 months, with 220,000 private sector service jobs created.

The US dollar was virtually unchanged following the release of PMI data. The US dollar index, a weighted average of the greenback’s performance against a basket of six currencies, was at 79.49. Later in the week Federal Open Market Committee member Jeremy Stein will give a speech, as will Fed Chair Janet Yellen. The central bank agreed unanimously last week to reduce the pace of monthly bond buying by another $10 billion.

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