ISM Non Manufacturing Survey: Trade Uncertainty But Stronger Jobs

Bottom Line: The survey of business activity in the services, construction, and government sectors of the economy came in weaker than expected as the new order component fell from cycle highs. Uncertainty around trade policy is starting to impact businesses -- anecdotal reports from the construction sector, for instance, suggested that long-term planning had become difficult amid tariffs. Amid the positives of this report, the employment component rose -- historically this correlates well with non-farm payroll growth and is a useful indicator when issued prior to the NFP report. Like ADP earlier this morning, this report would suggest upside risk to the consensus for Friday's payroll growth. The ISM Non-Manufacturing Index FELL by 0.7 points in March to 58.8%, compared with market expectations for a larger decline to 59.0%. The March reading was slightly higher than its average level over the past 12 months. And while lower than last month, the current level of the index indicates that the economy is growing moderately.

• New Orders fell by -5.3 points to 59.5%.
• Order Backlogs increased slightly and Inventories increased modestly.
• Employment grew by 1.6 points to 56.6% , indicating that upcoming employment report will likely be higher than last month's print.
• Prices increased by 0.5 points to 61.5%.

Quotes from the Survey:

• “The unbelievable amount of market volatility in construction-related materials that started with lumber continues with the tariffs on steel and aluminum. Accurate, long-term planning has become incredibly difficult, as distributors that historically held costs for at least 30 days are now, in some cases, committing to only seven days, as prices can change drastically in that time.” (Construction)
• “Interest rate hike [and] tariffs are likely to impact cost and price of goods and services.” (Finance & Insurance)
• “Still feeling effects of plants in Puerto Rico being down, or not back to full capacity of IV solutions and plastic tubing sets.” (Health Care & Social Assistance)
• “Business is stronger than forecast in March. Strategic sales continue to exceed forecast in March, as they have all quarter.” (Management of Companies & Support Services)
• “Increased level of activity and pricing overall.” (Mining)
• “As the first quarter end approaches, business outlook is steady, but not nearing growth forecast in Q4 2017.” (Professional, Scientific & Technical Services)
• “Housing market [is] still strong, despite a shortage of construction workers.” (Public Administration)
• “Q1 was positive, despite weather conditions that affected operations on the East Coast. The outlook remains positive going into Q2.” (Transportation & Warehousing)
• “Overall, business has been slower than [the] previous quarter; however, we expect it to increase in the second quarter of 2018.” (Wholesale Trade)