Economist's Insights

ISM Manufacturing Index Lifts Spirits after Run of Weak Data

May 3, 2017

The ISM Non-Manufacturing index provided a little relief from a recent run of weak economic reports, rising more-than-expected from 55.2 to 57.5. Looking at the sub-components of the report, there was widespread strength.  The new orders index, a key indicator of future activity, increased 4.3 points to its highest level since 2005.  The new export order index also rose another 3.0 points to its second-highest level in the data’s 20-year history, illustrating the impact of better global growth and the recent Dollar weakness. Inventories appear to be rising, a positive sign for 2Q GDP.  The only negative indicator was a 0.2 point drop in the employment index, remaining consistent with slower job growth in April.  However, the ISM employment report has lost some of its correlation with private payroll growth post-recession and now appears to be more reactionary than predictive.  The composite ISM index (combining both the non-manufacturing and manufacturing reports) is now consistent with YoY GDP of 3.4%, up from 2.5% after the March data.  Overall, the report is a welcomed, positive surprise after a string of weak reports on GDP, the manufacturing sector, job growth, and auto sales.