By Orbex

The Institute of Supply Management will be releasing the non-manufacturing PMI report later today. According to the median estimates, the non-manufacturing activity index could rise by just 0.1 points.

In April, non-manufacturing activity registered 55.5 on the index. This was down 0.6 points from the month before. Despite the decline, non-manufacturing or services activity managed to remain in an expansionary mode.

A reading above 50 on the index indicates growth in the sector. Meanwhile, other measures of the services sector, such as Markit’s services PMI is forecast to show no change. Markit’s flash services PMI already signaled a slower pace of increase in activity.

The ISM’s non-manufacturing index hit a high of 60.8 in September 2018 before pulling back sharply since then.

After registering 53.0 on the index previously, activity is forecast to fall to 50.9.

The non-manufacturing index survey comes amid a host of other global PMI figures coming out. As a result, this could shed light on services activity globally. Heading into the event, investors are remaining cautious.

Services Activity Slows in April

But April’s data fell short of the median estimates. While growth in the services sector was slowing, April’s services activity marked a 117^th consecutive month of expansion. The US is in one of its longest stretches of economic growth.

Amid growing headwinds in regard to Trump’s trade policies, economists have turned cautious. The yield curve inversion among other things is starting to spook investors as well.

This could well translate into subdued business expansion in the services sector. The main impact of the trade wars was seen from the recent data from China. Both the manufacturing and services sector activities were pointing to a slowdown.

With China hitting back at the US with retaliatory tariffs, business investment could take a hit. This was evident from the recent first quarter revised GDP report. Although growth was revised down by just 0.1 percentage points, the main contributing factor was business spending and investment.

The underlying sub-components of the non-manufacturing activity also gave a pessimistic view of activity.

The new orders index fell by 0.9 points to 58.1 in April while the employment index fell by 2.2 points to 53.7. The prices index was also down, by 3 points to 55.7 in April. In contrast, the non-manufacturing business activity index jumped 2.1 points to 59.5 for the month.

Will ISM Non-Manufacturing PMI Impact Markets?

Amid the major global narratives in the backdrop, today’s non-manufacturing PMI is likely to be brushed aside. With investors staying cautious, a PMI reading in line with estimates is unlikely to translate into optimism.

On the other hand, a miss on the estimates with the NMI falling further to the 50-level could, however, become the catalyst. Investors are already expecting to see growth to slow. They are also starting to price in a possible rate cut from the Federal Reserve later this year.

However, a lot of this will depend on how the trade wars will impact the economy. While there have been talks of inflation rising due to higher import prices on account of tariffs, the impact is said to be negligible.

The NMI data comes amid a busy week. On Friday, the monthly jobs report will be coming out. The unemployment rate could hold steady at 3.6%. Wages, a crucial part of the jobs report could rise 0.3% on the month.

The jump in wage growth is mostly due to a shortage of skills. Meanwhile, the pace of jobs added to the economy is gradually slowing over the past few months.

Various measures of business surveys already show that growth of new orders was weakening. On the other hand, the backlog of orders was rising. However, this was due to a shortage of skills rather than an increase in new orders.

By Orbex