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Non-Manufacturing Sector Grew for 98th Consecutive Month

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ISM non-manufacturing index grew at a slower pace

The Institute of Supply Management (or ISM) releases a monthly report on economic activity in the non-manufacturing sector or the services sector. This report has a similar format as the manufacturing sector report and is prepared by conducting a survey of purchasing and supply executives in these sectors. In March, the service sector continued to grow but at a slower pace. The ISM non-manufacturing index was reported at 58.8, which is 0.7% lower than the February reading of 59.5. Economic activity in the services sector expanded for the 98th consecutive month. The below chart shows a list of all other economic activity indexes for the services sector, as reported by the ISM.

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The breakup of the constituent industries

As per the ISM non-manufacturing March report, expansion in the sector was broad-based with two of the 18 industries reporting contraction in March. The constituent indexes were reported to have declined for new orders and business activity in March, but they remain above the ten-year average. The supplier delivery index saw its highest reading in 17 years. The increase in copper and steel prices have resulted in a higher price paid index in March. Industries that benefit from this continued improvement in the service sector include construction (ITB), real estate (VNQ), retail (XRT), rental (REZ), and leasing.

The outlook for the sector

The ISM services sector PMI is a diffusion index, meaning any reading above 50 is a sign of expansion. This month’s PMI reading of 58.8 is a positive sign for the services sector (IYC) and despite the key optimistic segments of the report, the business activity index and new order index fell in March.

In the next part of this series, we’ll analyze the trade balance data for the previous month and understand why the trade deficit has increased again.

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