ISM Data Shows Service Sector Back In Growth Mode

Each month, the Institute for Supply Management releases a report on the non-manufacturing sector of the economy, along with an index meant to capture the rate of expansion or contraction in the service sector.  After spending the first three months of the year below 50 (suggesting contraction), the NMI index jumped to 52.0 in April, surprising economists who were expecting it to slip to 49.1.

Despite its general acclaim, I'm not the world's biggest fan of ISM's methodology (and have previously aired some grievances about it).  While I'd argue one does well not to put too much stock into the precise levels of ISM indices, they're somewhat more useful in detecting broad directional shifts.

Depending on whether you want to discount the January dip as noise in the data, the following three months' readings suggest the service sector (which accounts for 80% of jobs and 64% of GDP) either recovered swiftly during the first quarter and is continuing an upswing, or never dipped into contraction in the first place.  Either way, GDP still managed to grow (and perhaps to accelerate) during the January-March quarter, despite an average NMI reading of 47.8.

With the index now pushing significantly higher, it's another disappointing day for recession bandwagoneers.  Sensitive to the plight of economic doomsayers, the Associated Press has tactfully refrained from reporting on the surprisingly good economic news at all, opting instead to leave their un-updated pre-market dose of morbidity dangling out there as their final word on the subject.

Investors were awaiting a key reading on the U.S. service sector. The Institute for Supply Management is expected to say its April index of nonmanufacturing activity came in at 49.3, indicating a small contraction, after March's similar reading of 49.6, according to economists surveyed by Thomson Financial/IFR.

We'll see an update sooner or later - it may just take longer than usual for the AP economics desk to find a way to spin this unmistakably good news into a sign of certain economic ruin.