ISM Non Manufacturing Survey: Rebound Led By Stronger Jobs

Bottom Line: Running counter to ADP's report this morning that showed a sharp drop in job gains, the ISM non-manufacturing survey rebounded in the May rebound, led by the employment component, which hit a six-month high. The employment Index has had strong correlation with the total nonfarm payrolls ex-manufacturing growth in the past. Also aiding the rebound in the overall survey index level was a boost in new orders as only one of 17 industries reported slower growth. Overall, the survey suggested business activity in the services, construction, and government sectors of the economy continued to grow at a modest to moderate pace, clearly not experiencing the uncertainties that the manufacturing sector has. The ISM Non-Manufacturing Index ROSE by 1.4 points in May to 56.9%, compared with market expectations for a decline to 55.4%. The May reading was slightly lower than its average level over the past 12 months. That said, the current level of the index indicates that the economy is growing moderately.

• New Orders rose by 0.5 points to 58.6%.
• Order Backlogs declined modestly and Inventories increased modestly.
• Employment grew by 4.4 points to 58.1%, indicating that upcoming employment report will likely be higher than last month's print.
• Prices fell by 0.3 points to 55.4%.

Quotes from the Survey:

• “Waiting to see [the] impact of Chinese import tariff affect.” (Utilities)
• “Our local economy is doing very well except for a large number of suburban office vacancies.” (Finance & Insurance)
• “There is added pressure to find operational savings so we can reduce the cost of healthcare, be a model to others, and pass the savings along to our patients and members of our health insurance business.” (Health Care & Social Assistance)
• “Economy is good and it's showing in our weekly sales, tariffs are affecting some, but doesn't seem to matter. Our prices are up as well as costs, but sales are good.” (Accommodation & Food Services)
• “Low unemployment is good since our business is entertainment and relies on discretionary spend.” (Arts, Entertainment & Recreation)
• “Ability to source and retain employees continues to strain the business.” (Construction)
• “General conditions are steady, not increasing or going down.” (Information)
• “We reported very strong Q1 results and raised our FY guidance. However, our stock has traded down due to the continued uncertainty in healthcare/Rx. There is a concern that tariffs on pharmaceuticals could be on the horizon.” (Retail Trade)
• “Our business level is connected to metal commodity future outlook, but current trade war does not let investors have a clear sight. In this sense, [it] has been very difficult to plan in a long term ahead.” (Mining)
• “Gearing up for summer busy construction season.” (Public Administration)