Services sector still contracting, but shows more new orders

| 5 May 2009 10:36

Today, the Institute for Supply Management (ISM) released its Non-Manufacturing Survey on Business. The overall index increased to 43.7 in April from 40.8 in March.  As 50 is the demarcation line for a growing economy, these numbers demonstrate that the services sector is still contracting. Nevertheless, the index was broadly higher across most of its components and the new orders number increased to 47.0.  This should be taken as a good sign.

The chart below shows all of the relevant data. You should note that new orders in both the non-manufacturing and manufacturing sectors are leading the climb in numbers higher.

ism-nfm-2009-04

My read of the data is this:

  • The services sector is contracting, albeit at a slower rate than in the past.
  • The wide dispersion of increase across all of the subcomponents suggests we are seeing an upward trend which will be sustained.
  • The best leading indicator of better times ahead is new orders. This number has reached 47, a positive signal for recovery.
  • Therefore, in all likelihood, the worst is behind us.  More than that, I do not anticipate a relapse.  Therefore, the only question is when the 50 demarcation line will be reached.

Green shoots? Yes.

Source
Non-Manufacturing ISM Report On Business® – ISM website

avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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