Monday, April 5, 2010

ISM Report for March: Service Sector Expanded, But Not Jobs

The US stock market continued its amazing run today, with Dow threatening to break above 11,000. One of the reasons offered by analysts and pundits was the ISM (Institute of Supply Management) non-manufacturing index released today, which rose to 55.4 in March from 53 in February - bigger gain than expected.

As this AP article reminds us, "The service sector is important as it accounts for about 80 percent of U.S. jobs excluding farmworkers. It includes jobs in areas like health care, retail and financial services. The sector is highly dependent on consumer spending, which powers about 70 percent of the economy."

The article make it sound like the service sector expansion means job creation in the sector.

But does it? What exactly is expanding? What is this index measuring?

Looking for answers to my own questions, I went to the ISM website. Here's what I found:
[Clicking on the table will open a new window.]

The number in each category is essentially a sentiment expressed by the survey respondents. Yes, business activity seems to be picking up, backlog orders, export orders and import jumped, new orders accelerating, prices increasing. So far so good. Now, has it translated into creating jobs?

The answer seems NO. The direction is still "contracting". It may be very very slowly turning to "not contracting" but despite the accelerating pace of the recovery in other categories the employment was basically unchanged.

Business may be expanding, but companies are in no hurry to hire. They seem to make the existing resources (including human resources) work more efficiently. The recently-passed health care deform bill doesn't give any incentive for businesses to hire in America.

Without a job, how could one spend? Banks are not lending. Something doesn't quite add up, does it?


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