Strengthening domestic economy to fuel optimism among US service-sector firms in the coming months

The Institute for Supply Management (ISM) non-manufacturing index edged lower by 0.4 points to 56.5 in March. The headline number was bang on market expectations.

The 1.9 point decline in the business activity sub-component weighed on the index's performance in March, but the rest of the sub-components fared quite well. New orders and backlog of orders rose by 1.1 and 0.5 points, respectively. The import (+4.5) and export (+6.0) order sub-components also advanced. Ditto for the employment sub-component, which edged up by 0.2 points to 56.6.

The outperformance of the non-manufacturing sector relative to manufacturing is not surprising. Service sector industries are more domestically-oriented and less exposed to the impact of rising value of greenback or shipping disruptions, which plagued West Coast ports in recent months. Meanwhile, a strengthening domestic economy should continue to fuel optimism among service-sector firms in the coming months.

"Despite the modest downshift in the ISM non-manufacturing index in March, overall this was an encouraging report. The index remains at a high level, indicating continued growth in America's service sector, which accounts for the bulk of economic output and generates the majority of new jobs." - said TD Economics in a report on Monday