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First Cut: ISM Non-Manufacturing Index falls sharply in April, if less than expected

The ISM Non-Manufacturing Index for April fell to 41.8 after 52.5 in March. The decline was below most expectations but any good news that might imply is illusory. Three of the four components fell sharply and well into recessionary territory with the increase in one reflecting structural problems, not growth. In any case, the index was below the threshold of 48.5 which the ISM says “over time, generally indicates an expansion for the overall economy.” It also aligns with the performance of the ISM Manufacturing Index which also signaled recession.

The index for business activity fell 22.0 points to 26.0 in April after 48.0 in March. It surpassed even the lowest readings of the December 2007-June 2009 recession and hit a series bottom. Nonessential business were by-and-large shuttered during the month.

The index for new orders was down 20.0 points to 32.9 in April from 52.9 in March. It, too, surpassed the contraction in new orders in the last recession. Although not an index component, order backlogs contracted too 47.7 in April after 55.0 in March and are likely to continue to fall. New export orders fell to 36.3 in April, the second lowest in the series after the 34.5 in November 2008. Imports actually rose to 49.3 in April after 40.2 in March, and suggested that some activity has resumed abroad and prior orders are being filled.

The April employment index was 17.0 points lower to 30.0 after 47.0 in the prior month. It was under the previous low of 31.5 in November 2008.

The index for supplier deliveries rose 16.2 points to 78.3 in April from 62.1 in the prior month. Problems along the supply chain are lengthening delivery times significantly due to delays in transportation and short supplies of some critical materials while nonessential businesses are closed to keep COVID-19 from spreading.

The prices paid index was up to 55.1 in April after 50.0 in March. The drop off in energy costs and some food prices was more than offset by shipping costs, prices for cleaning and disinfectant products and personal protective equipment.

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