By Kathleen Madigan
Two surveys of businesses outside of manufacturing indicate
output growth and employment strengthened at the start of the
second quarter, suggesting the U.S. economy is revving up after
possibly contracting in the first quarter.
The Institute for Supply Management said Tuesday its
non-manufacturing purchasing managers index came in at 57.8 in
April, up from 56.5 in March and better than the 56.3 expected by
forecasters surveyed by The Wall Street Journal.
Earlier Tuesday, data provider Markit said its service-sector
composite slowed to 57.4 in April from 59.2 in March, but the April
index stood above the first-quarter average of 56.8. Markit said
its employment index jumped to a 10-month high. As with the ISM,
Markit readings above 50 indicate activity is expanding.
In the ISM report, "the majority of respondents indicate that
there has been an uptick in business activity due to the improved
economic climate and prevailing stability in business
conditions."
"The index's trend has been a consistent pattern of slow
incremental growth," said Anthony Nieves, who oversees the ISM
survey.
The ISM's new orders index increased to 59.2 in April from 57.8
in March. The exports index, however, plunged to 48.5 after it
jumped to 59.0 in March. Mr. Nieves indicated that only a small
portion of non-manufacturers sell overseas, but said the strength
of the dollar has impacted exports.
Production reversed course sharply after two months of slowing.
The ISM business activity/production index rose to 61.6 from 57.5
in March.
A sharp widening in the March trade deficit reported earlier
Tuesday caused many economists to estimate the U.S. economy shrank
in the first quarter. The ISM report suggests better growth this
quarter.
"Today's report is an encouraging sign that, after a distorted
first quarter, the economy is getting back to a solid uptrend,"
wrote Stephen Stanley, chief economist at Amherst Pierpont
Securities, in a research note.
Like the Markit survey, the ISM report was upbeat about payrolls
ahead of Friday's April employment report. The ISM employment index
edged up to 56.7 in April from 56.6 in March. That is in contrast
to last Friday's ISM manufacturing survey, which found a
contraction in factory payrolls.
Non-manufacturers continue to think their inventories are too
high, but Mr. Nieves said the rising backlog of orders and strong
production readings suggest the buildup in inventories is
intentional, as businesses are busy meeting new demand.
The prices index slowed to 50.1 from 52.4.
The ISM non-manufacturing report is comprised mainly of comments
from service-sector companies that make up the bulk of the U.S.
economy, but it also includes construction and public
administration.
Write to Kathleen Madigan at kathleen.madigan@wsj.com