The Institute for Supply Management releases two major reports each month. The first is a look at conditions in the manufacturing sector, and the one I'll talk about today and the one released this morning looks at activity in the broad-based service sector.
The Non-Manufacturing ISM Report On Business increased from 43.7 in April to 44.0 in May and remains in a gradual uptrend. A reading below 50 suggests the service sector is still contracting but the trend is signaling that the pace of the recession is easing. Analysts according to Bloomberg had expected 45.0 so today’s small increase is a little disappointing.
New orders and business activity actually worsened, and though still below 50, prices paid was a key contributor to May’s rise, registering the largest increase among the subcomponents - 40.0 to 46.9. I’m still not looking for a burst of inflation, but disinflation (falling rates of inflation), which contrasts with deflation (actual prices declines), seems to have leveled off.
Gains since November of last year signal that the worst of the steep declines in activity are over; however, at this time, any economic recovery is likely to be slow. Although steep recessions in past years have been followed by strong recoveries, thus far, we are probably not looking at a ‘V’ shaped recovery, but something more like a ‘U’ or worse, a ‘W’ shaped expansion.
Strong gains in housing are still needed in order to put a firm foundation under economic activity. For a look at mortgage applications and housing data today, please see my home page at Examiner.com.
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