U.S. ISM non-manufacturing index rises in April

The service sector momentum in the U.S. rebounded in April. The Institute for Supply Management’s ISM non-manufacturing index rose 2.3 points to 57.5 in April after dropping in March. The April print is quite above market projections that called for just a modest rise to 55.8. The monthly rebound brings the index back close to the highest level since the end of 2015.

Gains were widespread with most sub-indicators registering a rebound on the month. Amongst the most marked were increases in new orders and new export orders to 63.2 and 65.5, respectively. Both the sub-indices are at the highest levels since prior to the Great Recession.

Business activity rose 3.5 points to 62.4, while prices paid rose 4.1 points to 57.6. Amongst the remaining indicators, inventory and imports sentiment dropped in April. However, the employment sub-index was the main weak spot I the report, easing 0.2 points to 51.4. Almost all non-manufacturing industries surveyed recorded growth in April, with forestry, agriculture, fishing & hunting being the only exception, noted TD Economics.

The ISM nonmanufacturing index accelerated in April, in contrast to its manufacturing equivalent that dropped for the second straight month. The monthly rebound is encouraging as the rises were widespread.

According to TD Economics, the rebound in the second quarter growth is likely to come due to a normalization in consumer spending, which hinges on a supportive labor market. A subpar payrolls print, along with a seemingly diminished appetite for durables goods as per April’s weak vehicle sales print, might pare back expectations as to the size of the recovery. The rebound in the prices sub-index, coming after two straight monthly declines signals a break for weakening price pressures.

“We expect the recent softness in price trends to be temporary. But should it persist, it could delay the Fed’s interest hiking cycle”, added TD Economics.