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PNC Chief Economist Gus Faucher: ISM Services Index at All-Time High in March

Michigan Business Network
April 5, 2021 1:00 PM

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  • The ISM service index surged in March, to an all-time high. Details were very strong.
  • The ISM manufacturing index rose in March to its highest value since 1983.
  • U.S. economic growth will be very strong this year due to stimulus and rising vaccinations.

The Services Purchasing Managers Index from the Institute for Supply Management rose to 63.7% in March, the highest-ever reading for the survey, which goes back to 1997. A reading of above 50% indicates expansion in services industries. The index jumped 8.4 percentage points from 55.3% in February, and has been above 50% for 10 straight months.

All four of the major components used to calculate the index rose in March from February, and all were well above the 50% level. The business activity/production index jumped by 13.9 percentage points in March to 69.4%, while the new orders index surged by 15.3 percentage points to 67.2%. The huge increase in new orders bodes very well for near-term growth. The employment index 4.5 points to 57.2%, while the supplier deliveries index rose 0.2 percentage point to 57.2%.

Other details were also very good, with prices rising, exports up, and order backlogs increasing. All 18 of the services industries covered reported expansion in March, with the strongest growth in arts, entertainment, and recreation; wholesale trade; and mining. The pickup in arts, entertainment and recreation is especially encouraging as this industry suffered tremendous damage during the early stages of the pandemic and has been very slow to recover given consumer reluctance to be in public and state restrictions on activity.

Both the ISM manufacturing and services indices are extremely high in the spring of 2021 as the U.S. economic recovery from the Viral Recession accelerates. The ISM services index hit an all-time high in March, while the manufacturing index, which has a much longer history, hit its highest level since 1983.

After the U.S. economy initially recovered in the summer of 2020, following a steep contraction in March and April last year as the pandemic came to the U.S., growth slowed at the end of 2020 and in early 2021 as coronavirus caseloads began to surge again and state re-imposed some restrictions on activity. Stimulus payments, rising vaccinations and better weather have all contributed to the huge rebound in March. Employment rose by 916,000 over the month, according to the Bureau of Labor Statistics, the best month of job growth since August.

Growth will remain very strong throughout 2021 and into 2022 as household gradually spend their stimulus payments, businesses reopen and rehire, and accelerating vaccinations make consumers more willing to go out and spend. A surging housing market, thanks to both very low interest rates and extremely strong demand for single-family homes, will also be a major contributor to growth this year.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.

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Michigan Business Network is an online broadcasting company that provides knowledge, news, and insights into Michigan’s businesses, industries, and economy.