Business activity in the non-manufacturing sector increased at a faster rate in May 2007, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.
What respondents are saying:
* "Business activity remains stable. Fuel prices remain outrageously high." (Professional, Scientific & Technical Services)
* "Commercial business is solid...retail very competitive...inverse yield curve squeezing margins." (Finance & Insurance)
* "Increasing pressure on cost reduction as energy costs remain high." (Accommodation & Food Services)
* "Housing market is still depressed." (Construction)
* "Business growing." (Management of Companies & Support Services)
Let's look a little deeper in the numbers.
This is the second month in a row the overall index has increased. However, the overall index has fluctuated between a high of 59.7 and a low of 52.4. In other words, the index really hasn't moved much in a year. Today's overall number is the 12-month high. But I would like to see the index jump above this range before I get excited about a big move. However, the number does indicate business is expanding at about the same pace as the last 12 months.
New orders increased for the second month in a row. This is also good news. But the month-to-month increase was from 53.8 to 55.5 to 57.4. In other words, it's an increase but not a really big increase. This number falls in with the overall activity indicator. It's good, but doesn't indicate a huge increase. It's more business as usual.
Here's some unwelcome news:
Prices paid by non-manufacturing organizations for purchased materials and services increased in May for the 48th consecutive month. ISM's Non-Manufacturing Prices Index for May is 66.4 percent, 2.9 percentage points higher than April's index of 63.5 percent. In May, the percentage of respondents reporting higher prices decreased by 1 percentage points to 41 percent as compared to April. The percentage indicating no change increased from 54 percent in April to 55 percent in May. The percentage of respondents noting prices decreased remained the same at 4 percent in May.
This is the kind of news that keeps the Fed on its toes.
And exports look good:
Orders and requests for services and other non-manufacturing activities to be provided outside of the United States by domestically based personnel in May increased for the second consecutive month after a month of contraction. The New Export Orders Index for May is 66 percent, compared to April's index of 55.5 percent. Of the total respondents in May, 69 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.
Sometime over the last few months when earnings season was in full swing, there was an emerging consensus stating exports and foreign markets would help US based companies weather an economic slowdown in the US. This was one of the reasons given for the strength of earnings during the first quarter. This number from the ISM report adds strength to that argument.
Short version -- this report seems in indicate the status quo will continue. We didn't see a big gain, but we didn't see a big loss.