U.S. ISM Non-Manufacturing Index Rises, Points to Positive Economic Growth

In today's only major economic release in Canada and the United States, the U.S. ISM non-manufacturing index increased to 52 in April from 49.6 in March contrary to market expectations calling for a slight drop in the index.

The business activity index dropped 1.3 points to 50.9. However, it still remained above the 50 threshold, indicating expanding activity in the sector. After collapsing in January, this component has remained above 50 for three straight months. The employment index increased to 50.8 in April from 46.9 in March, reinforcing the non-farm payrolls data, which showed a 90,000 job gain in the services sector. The new orders index dipped slightly to 50.1 from 50.2. The new export orders index fell 6.5 points to 48.5. The prices index increased to 72.1, a high since November 2007.

The level of the overall index in April is historically consistent with GDP growth of around 2% on an annualized basis. The earlier-released ISM manufacturing survey for April is also pointing to positive growth in the economy. The business activity index, which correlates as well with real GDP growth as the non-manufacturing index, has remained consistently above the 50 boom/bust mark (with the exception of the peculiar collapse in January) through the first month of the second quarter. These factors suggest some upside risk to our forecast calling for a contraction in second-quarter GDP growth. However, with confidence depressed, employment declining and gas-prices sky high, it is clear that considerable headwinds are still facing the U.S. economy.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.