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First Cut: ISM Non-Manufacturing Index cooler in March on slower activity and orders

The ISM Non-Manufacturing Index for March fell to 56.1 after 59.7 in February, but is similar to the 56.7 in January. The bounce from the end of the partial federal government shutdown helped boost February, but the upward impetus was limited and of short duration. Conditions are cooler for the first quarter 2019 without becoming soft.

The business activity index fell to 57.4 in March after 64.7 in February and 59.7 in January. The reading is still one of solid activity, but it is not hinting that it will regain the near-term highs seen in 2018. New orders were down to 59.0 in March after 65.2 in February and 57.7 in January. The pace of orders is good and only marginally below the trend of the past year.

Employment was up a bit to 55.9 in March after 55.2 in February, but the heated pace of hiring seen in the second half of 2018 has settled to something more middling, if still healthy. Labor shortages may be constraining some hiring. Supplier deliveries rested at 52.0 in March, on trend with the recent readings in the low 50’s. This would suggest that deliveries are not suffering much in the way of delays and are hovering near the neutral mark consistent with moderate expansion.

Along with rising energy costs, price paid rose to 58.7 in March from 54.4 in February. The sharp declines in oil and related prices have ended and are now on the upswing, although they have not yet fully retraced the drop.

Export orders for services moderated to 52.2 in March after 55.0 in February. This component is well below the near-term peaks of 2018. However, it is expanding, albeit unevenly. Imports returned above neutral at 51.1 in March after a dip below to 48.5 in February. Some of this was due to hesitation about imports if higher tariffs would be in effect.  Negotiations are ongoing and orders will be placed to get ahead of any possible increases.

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