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posted on 03 December 2015

November 2015 ISM Services Index Declines But Remains in Expansion

Written by Steven Hansen

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, but declined from 59.1 to 55.9 (above 50 signals expansion). Important internals likewise improved and remain in expansion. Market PMI Services Index was released this morning, also is in expansion, but improved.

This was above expectations of 57.0 to 59.1 (consensus 58.2).

For comparison, the Market PMI Services Index was released this morning also - and it weakened marginally. Here is the analysis from Bloomberg:

Released On 12/3/2015 9:45:00 AM For Nov, 2015
Prior Actual
Level 54.8 56.1

The services PMI finishes November at a very solid 56.1, down 4 tenths from the mid-month flash but up a strong 1.3 points from October. November is the best full-month showing for this index since August and reflects strength across both business and consumer customers. The report describes new orders as "robust" and "accelerating" and the best since July, which is good news for the U.S. economy where manufacturing, which is directly exposed to the global economy, has been weak. Hiring in the services sample is described as "sustained" though still weaker than the year-to-date average. The outlook is upbeat but a little less so than prior months with some respondents citing uncertainty tied to the interest rate outlook. In a plus, the report also cites strength tied to reduced pressures on household budgets, a reference to low gasoline prices. This report is a plus for the U.S. outlook. Watch for the ISM non-manufacturing report at 10:00 a.m. ET.

There are two sub-indexes in the NMI which have good correlations to the economy - the Business Activity Index and the New Orders Index - both have good track records in spotting an incipient recession - both remaining in territories associated with expansion.

This index and its associated sub-indices are fairly volatile - and onande needs to step back from the data and view this index over longer periods than a single month.

The Business Activity sub-index declined 4.8 points and now is at 58.2.

ISM Services - Business Activity Sub-Index

The New Orders Index declined 4.5 and is currently at 57.5.

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 November for the 70th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 55.9 percent in November, 3.2 percentage points lower than the October reading of 59.1 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 58.2 percent, which is 4.8 percentage points lower than the October reading of 63 percent, reflecting growth for the 76th consecutive month at a slower rate. The New Orders Index registered 57.5 percent, 4.5 percentage points lower than the reading of 62 percent in October. The Employment Index decreased 4.2 percentage points to 55 percent from the October reading of 59.2 percent and indicates growth for the 21st consecutive month. The Prices Index increased 1.2 percentage points from the October reading of 49.1 percent to 50.3 percent, indicating prices increased in November after two consecutive months of decreasing. According to the NMI®, 12 non-manufacturing industries reported growth in November. After a strong month of growth in October, the non-manufacturing sector's rate of growth slowed in November. Most respondents are still positive about business conditions."


The 12 non-manufacturing industries reporting growth in November — listed in order — are: Real Estate, Rental & Leasing; Information; Retail Trade; Health Care & Social Assistance; Accommodation & Food Services; Transportation & Warehousing; Finance & Insurance; Professional, Scientific & Technical Services; Management of Companies & Support Services; Construction; Educational Services; and Public Administration. The six industries reporting contraction in November — listed in order — are: Mining; Arts, Entertainment & Recreation; Wholesale Trade; Utilities; Agriculture, Forestry, Fishing & Hunting; 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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