ISM non-manufacturing to show continued strength in service sector

Regional service surveys from the Richmond and Dallas Fed districts suggest that national service sector activity continued to expand at a solid pace in March.

Combining the projection for a solid service-sector reading with the less-stellar results on the manufacturing sector would place the composite ISM at a respectable level of 55.9. 

The Q1 average of 56.2 would suggest that the economy expanded between 3.0-3.5% in the first quarter. Hard activity data is painting a much weaker picture and the tracking estimate now puts Q1 GDP at just 1.0-1.5%. 

"We expect the non-mfg ISM index is likely to slow only modestly to 56.5 from 56.9 in February. Our forecast would place the March reading well in line with the recent ranges, and would be consistent with GDP growth of 3.4%" said Societe Generale in a report on Tuesday

However, the resilience of survey-based indicators (as well as labor market indicators) reinforces the view that much of this weakness is temporary and will be reversed during the spring quarter.