Written by Steven Hansen
The April 2014 ISM non-manufacturing (aka services) index continues its growth cycle, and improved from 53.1 to 55.2 (above 50 signals expansion). Important internals were even stronger.
This was above the range of market forecasts of 53.0 to 55.0 (consensus 54.2).
There are two sub-indexes in the NMI which have good correlations to the economy – the Business Activity Index and the New Orders Index – and both have good track records in spotting an incipient recession. The Business Activity Index significantly strengthened and the New Orders Index improved – with both remaining in expansion territory.
This index and its associated sub-indices are fairly volatile – and one needs to step back from the data and view this index over longer periods than a single month.
The Business Activity sub-index gained 7.5 points and now is at 60.9.
ISM Services – Business Activity Sub-Index
The New Orders Index gained 4.8 and is currently at 58.2.
ISM Services – New Orders Sub-Index
The complete ISM manufacturing and non-manufacturing survey table is below.
Econintersect does give serious consideration to this survey as the service sector accounts for 80% of the economy and 90% of employment. However, this an opinion survey and is not hard data.
From the ISM report:
Economic activity in the non-manufacturing sector grew in April for the 51st consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.
The NMI® registered 55.2 percent in April, 2.1 percentage points higher than March’s reading of 53.1 percent. The Non-Manufacturing Business Activity Index increased substantially to 60.9 percent, which is 7.5 percentage points higher than the March reading of 53.4 percent, reflecting growth for the 57th consecutive month at a much faster rate. The New Orders Index registered 58.2 percent, 4.8 percentage points higher than the reading of 53.4 percent registered in March. The Employment Index decreased 2.3 percentage points to 51.3 percent from the March reading of 53.6 percent and indicates growth for the second consecutive month, but at a slower rate. The Prices Index increased 2.5 percentage points from the March reading of 58.3 percent to 60.8 percent, indicating prices increased at a faster rate in April when compared to March. According to the NMI®, 14 non-manufacturing industries reported growth in April. The majority of survey respondents’ comments indicate that both business conditions and the economy are improving.
INDUSTRY PERFORMANCE – The 14 non-manufacturing industries reporting growth in April — listed in order — are: Arts, Entertainment & Recreation; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Construction; Public Administration; Accommodation & Food Services; Educational Services; Transportation & Warehousing; Finance & Insurance; Management of Companies & Support Services; Information; Real Estate, Rental & Leasing; and Utilities. The four industries reporting contraction in April are: Mining; Health Care & Social Assistance; Professional, Scientific & Technical Services; and Other Services.
Caveats on the use of ISM Non-Manufacturing Index:
This is a survey, a quantification of opinion. However, as pointed out above, certain elements of this survey have good to excellent correlation to the economy for as long as it has been in existence. Surveys lead hard data by weeks to months, and can provide early insight into changing conditions.
The main ISM non-manufacturing index (NMI) is so new that it does not have enough data history to have reliable certainty about how it correlates to the economy. Again, two sub-indices (business activity and new orders) do have good correlation for the limited history available.
No survey is accurate in projecting employment – and the ISM Non-Manufacturing Employment Index is no exception. Although there are some general correlation in trends if you stand far enough back from this graph, month-to-month movements have not correlated well with the BLS Service Sector Employment data.
ISM Services Employment Sub-Index vs BLS Non-Farm Services Employment
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