posted on 03 June 2016
Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, but declined from 55.7 to 52.9 (above 50 signals expansion). Important internals declined but remain in expansion. Market PMI Services Index was released this morning, it also declined but remains in expansion..
This was below expectations (from Bloomberg) of 54.8 to 56.5 (consensus 55.5).
For comparison, the Market PMI Services Index was released this morning also - and it improved into expansion. Here is the analysis from Bloomberg:
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.
The Business Activity sub-index declined 3.7 points and now is at 55.1.
ISM Services - Business Activity Sub-Index
The New Orders Index declined 5.7 and is currently at 54.2.
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:
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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