Demand for Non-Manufacturing Products, Services in U.S. Falls

Americans are demanding less services from non-manufacturing industries in another indicator that the economic recovery is slowing.

A new report from the Institute of Supply Management shows non-manufacturing activity fell from February to March, as the non-manufacturing index (NMI) fell to 56.5 in March, down from 56.9 in February. The NMI showed a fall in business activity and production, supplier deliveries, inventories, and inventory sentiment.

Americans are demanding less services from non-manufacturing industries in another indicator that the economic recovery is slowing.

A new report from the Institute of Supply Management shows non-manufacturing activity fell from February to March, as the non-manufacturing index (NMI) fell to 56.5 in March, down from 56.9 in February. The NMI showed a fall in business activity and production, supplier deliveries, inventories, and inventory sentiment.

While the headline number fell, the business activity index also saw a decline to 57.5 in March, from 59.4 in February. While lower, any number above 50 indicates expansion, and the report noted that several industries, from real estate, food services, arts and entertainment, finance, and retail trade all saw an expansion of activity. However, the rate of business activity growth is at its lowest level in over four months, despite expectations of growing expansion thanks to lower oil costs and more demand from end consumers.

Employment, Price Gains

After several months of falling prices for materials, the ISM noted a slight increase in prices, with the price index rising to 52.4 in March. Price declines had been slowing in the last three months, but the report noted that lower fuel prices were not offsetting rising costs on other goods and services, such as freight and transportation costs.

Employment also rose, with the ISM’s non-manufacturing employment index rising 0.2 percentage points to 56.6, indicating an acceleration of jobs growth across industries. The ISM also noted employment has been growing for the last 13 months.

Unemployment Data “Noisy”

The report has fueled speculations that a recent slowdown in jobs growth seen by the Bureau of Labor Statistics might be temporary, and a rebound is likely to come as the weather improves. In its most recent report, the BLS noted the U.S. economy saw 126,000 new jobs and an unemployment rate of 5.5%, almost half of expectations of 247,000 new jobs. The BLS also saw a lower labor participation rate and downward revisions to previous estimates for employment in January and February.

There are debates about the implications of the jobs data in several notes released by investment banks in Asia and America, as economists struggle to interpret the report. On the one hand, some argue the data is “noisy,” and that a recent fall in the total number of new jobs may be an anomaly and possibly the result of cold weather dampening demand.

On the other hand, others have said the failure of consumers to spend more on falling oil indicates that there is considerable weakness in the economy, with the United States broadly settling on a lower growth rate in what Lawrence Summers has called “secular stagnation.”