–Component Breakdown Points to Headline Gains Ahead

By Mark Pender

NEW YORK (MNI) – An assessment of components points to no less than
sustained acceleration for the Institute For Supply Management’s
non-manufacturing composite index, according to analysis by survey chief
Anthony Nieves.

“When these results came in, they just blew my socks off,” Nieves
said in a telephone interview with Market News International.

The month’s list of superlatives begins with the composite index
which came in at 55.4 for the third straight plus-50 indication of
general month-to-month growth for the sector. March is a record for the
index which made its appearance in January 2008.

Strength is where it should be, in new orders which jumped to 62.3
for its highest reading since August 2005. The month-to-month increase
at 7.3 is the third largest in the 13-year history of the report. Nieves
points to the strength of breadth in new orders as 14 of 18 industries
show month-to-month increases.

But Nieves doubts that new orders can post a second straight 60
reading, though he confesses that this 60 reading “took me by surprise.”

Note that Nieves’s ISM colleague Norbert Ore, who heads the
manufacturing survey, has been taken by surprise by his report’s
exceptionally strong eight-month run of new orders that include five 60
readings. The new orders index on the non-manufacturing side has in the
past shown streaks of 60 readings including a 13-month stretch at the
beginning of the last recovery in July 2003.

Given the increase in new orders, Nieves sees a significant chance
for further acceleration in business activity, here the equivalent of an
output index. This index came in at 60.0 in March for the highest
reading since second-quarter 2006. Like new orders, this index showed a
long streak of plus-60 readings beginning in July 2003.

Nieves believes supplier deliveries is likely to pop back over 50
in the months ahead and will begin to add significantly to the composite
index. Nieves attributes March’s 4-point dip in supplier deliveries to
49.5, a sub-50 level that signals a decrease in month-to-month delivery
times, to an easy comparison with February’s weather delays.

Nieves said employment, the last in this description of the
composite’s four evenly weighted components, appears ready to move above
50 to also begin to add to the composite. He sees a pending build
developing for inventories which would point to increased output and the
increased need for labor. March’s employment index at 49.8 is the
strongest since fourth-quarter 2007.

Among risks to the outlook, Nieves points to tight credit, rising
input prices and especially to continued trouble for real estate,
construction, and finance, the three sectors which he stresses spell the
difference between his report and the ISM’s manufacturing report, one
where acceleration first took hold in third-quarter 2009 vs.
first-quarter 2010 for this report.

** Market News International New York Newsroom 212-669-6430 **

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