ISM Signals Slightly Better Economic Recovery Underway

78740145The ISM Non-Manufacturing Index rose to 56.3 in May from 55.2 in April. The gain might not look like that much, but investors and economic watchers need to consider that this was actually the strongest reading since August 2013. It is also almost five points higher than the recent low of 51.6 from February.

Wednesday's positive Institute for Supply Management report signals that at least the services and non-manufacturing economy is continuing to improve. It is hard to draw a direct comparison to how this will impact gross domestic product GDP in the second quarter because so much of GDP is consumption.

Still, the six-month average for the non-manufacturing segment is only 53.9. This remains lower than average over the past two years. In short, it is growth but not steady growth by any means.

The other bit of good news is that it may indicate that the awful trade deficit reading of $47.2 billion in April was an albatross and may be a one-month event. Still, this was the largest trade deficit in roughly two years.

Lastly, it seems that the poor payrolls report from ADP may have been an outlier and perhaps not anywhere close to as negative as it seemed — if, and that is a big if, it is, TrimTabs' report of 229,000 payrolls is more accurate.

All of this sets the stage for Friday's unemployment report from the U.S. Labor Department to be watched even closer than we were expecting earlier this month. And don't forget about the expected announcement of quantitative easing measures from the European Central Bank, which are due on Thursday morning.

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Filed under: Economy
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