The rebound in the ISM non-manufacturing index to a five-month high of 57.8 in April, from 56.5, leaves it at a level that historically has been consistent with GDP growth of nearly 4% annualised. Accordingly, there is little reason to believe that the potential contraction in first-quarter GDP is the start of a serious downturn in the US economy.It’s true that the corresponding ISM manufacturing index is a lot lower at 5.15 in April, not least because export-orientated manufacturers are bearing the brunt of the stronger dollar. But in a relatively closed service based economy like the US, it is the non-manufacturing sectors that dominate.Looking at the detail of the non-manufacturing survey, the employment index hit a six-month high of 56.7, up from 56.6, which leaves it at a level that would normally equate to monthly gains in services payrolls of slightly more than 250,000. Accordingly, even though the corresponding employment index in the manufacturing survey fell to a level that is consistent with monthly declines in manufacturing of up to 30,000, overall labour market conditions still appear healthy. Capital Economics continues to forecast that non-farm payrolls increased by 230,000 in April (data due out on Friday.)
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