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05 04 2016 | by Victor Xing | Economics

Strong April ISM NMI offset below-consensus ADP

April ISM NMI

April ISM NMI (Non-Manufacturing Index) beat expectations with gains seen across major sub-components.  Further uptick in services sector employment also managed to offset employment concerns, especially following the latest April ADP employment report at 156,000 vs. 193,000 consensus.

Major components:

  • Headline ISM NMI: 55.7 vs. 54.7 expectations and 54.5 prior
  • Business activity index at 58.8 vs. 59.8 prior
  • New orders at 59.9 vs. 56.7 prior
  • New export orders at 56.5 vs. 58.5 prior
  • Prices at 53.4 vs. 49.1 prior
  • Employment at 53.0 vs. 50.3 prior
April ISM NMI
April ISM NMI beat expectations with strong gains in new orders, prices and employment

Effects from dollar depreciation

The rise in prices is largely expected as a result of dollar weakness (foreign services become more costly and lift domestic prices).  Interestingly, the new export order index registered a small decline in the latest report, although it had risen more notably in recent months.

April ISM NMI
Dollar vs. ISM NMI prices and new export orders

Implications on Friday’s Payrolls

More importantly, investors are focusing on employment gains in the latest ISM report.  There had been a long-running debate on which time series better predicts payrolls: ADP or ISM’s employment index.  Simple correlation analysis preferred ADP (correlation: 0.926), although many market participants preferred the latter (correlation: 0.859).

April ISM NMI
NFP (black) vs. ADP (gold) and ISM (blue)

Next article05 02 2016 | by Victor Xing | Economics

Below-consensus ISM Manufacturing despite weaker dollar