ISM Non Manufacturing: Modest Expansion

Bottom Line: Business activity in the services, construction, and government sectors of the economy accelerated modestly in April, more than market expectations. The level of activity increased with acceleration in new orders. Employment also increased modestly and was its highest level since December. ISM Non-Manufacturing Employment Index has had strong correlation with the total nonfarm payrolls ex-manufacturing growth in the past. This would normally suggest a slight upside bias to current expectations for 200k non-farm payroll growth Friday, but presents a more mixed picture given only a modest gain in ADP report this morning. The ISM Non-Manufacturing Index ROSE by 1.2 points in April to 55.7%, its highest level since December, compared with market expectations for a smaller increase to 54.8%. The April reading was still slightly lower than its average level over the past 12 months. That said, this was also the 74th consecutive month that the non-manufacturing sector has expanded although the current level of the index indicates that the economy is growing only modestly. New Orders rose by 3.2 points to 59.9% as demand expanded for the 75th month. Order Backlogs declined slightly and have risen just slightly over the past year. Inventories increased modestly. Employment grew by 2.7 points to 53.0%, indicating that Friday's employment report should be on the moderate side. Prices increased by 4.3 points to 53.4%.