Non-Manufacturing Grows For 100 Months In A Row: 4 Picks
Zacks Investment Research | Jun 07, 2018 09:29PM ET
The non-manufacturing sector clocked the 100th consecutive month of growth in April as NMI measured by The Institute of Supply Management (ISM) touched 58.6%. Out of the 18 non-manufacturing industries, 14 reported growth. Any reading above 50 indicates that the sector is expanding and a reading above 55 is considered outstanding.
The increase was mainly driven by improving economic conditions boosting business activity and offsetting concerns about the uncertainty surrounding trade agreements, tariffs and the impact on supply side cost.
Rise in Key Indices
The ISM Business Activity Index registered growth of 61.3% in May, up 2.2% from the April reading of 59.1%, growing for the 106th consecutive month. Out of the 15 industries, 13 reported an increase in business activity driven by increasing demand for supplies and labor, and growing accounts and cross selling.
The index for New Orders jumped to 60.5% in April from 60% in March, marking the 88th straight month of increase. The surge was driven by existing clients adding new work. Of the 15 industries, 11 reported growth.
Employment Index surged to 53.6% in the month, increasing 0.5% sequentially, expanding for 51 months on the trot. Of the 14 industries, 11 reported growth. While the economy continued to create new jobs, increased business and a tight labor market compelled companies to pay higher to attract and retain employees.
Service Sector Scenario Impressive
The long streak of expansion indicates that the broader economy is on track for steady growth this year. After all, the non-manufacturing sector accounts for nearly 90% of the economy. The business services sector is gaining strength because it is firmly tied to non-manufacturing activities and the broader economy. Healthy economic growth leads to higher corporate profits.
Top 4 Gainers
Given the promising developments in the service sector, investors may consider buying sound stocks from the space.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a solid expected earnings growth rate for the year. You can see Zacks Investment Research
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