After what has been truly a miserable few weeks of economic data relative to expectations, there was a pleasant surprise on Wednesday morning when the ISM Non-Manufacturing report for the month of April came in better than expected. While economists were forecasting the headline print to come in at a level of 55.8, the actual reading came in at 57.5, nearly erasing all of March’s decline. On a combined basis and accounting for each sector’s weight in the overall economy, the April ISM came in at a level of 57.2. That’s still slightly off the multi-month high of 57.6 in February, but it’s a welcome improvement.
Digging into the internals of this month’s report, breadth was very good as seven of the ten components showed m/m increases. The largest increases this month were in New Orders, Prices, and Inventories. On the downside, the only declines were in Inventory Sentiment, Import Orders, and Employment. Regarding the decline in Employment, that doesn’t bode entirely well for this Friday’s Non-Farm Payrolls report. On a y/y basis, breadth was similarly positive as six components increased and four declined.
Regarding the individual components, there are just a couple we wanted to highlight. The first is Business Activity. After breaking a multi-year stretch of lower highs in February, Activity saw a sharp pullback in March but rebounded right to its former downtrend in April. It will be interesting to see which way this measure goes next month.
Even more interesting though is Export Orders, which surged in April. At its current level of 65.5, this component is at its highest level since May 2007 and has just seen its largest three-month spike on record. The one-two combination of a weaker dollar and stronger growth outside of the United States has been a real boon for US multi-nationals.