FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 06 September 2016

August 2016 ISM Services Index Growth Declines

Written by Steven Hansen

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, but declined from 55.5 to 51.4 (above 50 signals expansion). Important internals declined but remain in expansion. Markit PMI Services Index also declined but remains in expansion..

Analyst Opinion of the ISM and Markit Services Survey

These are surprisingly weak reports. However, other data points to marginally improving conditions, and survey's tend to miss turning points. I am not writing off the results of these surveys - only saying I would be careful how one interprets these results. I will change my view if next month the data comes in weak.

Still, the significant decline in ISM business activity subindex and the new orders subindex should wake people up that the service sector may not be supporting economic growth in 3Q2016 GDP.

This was below expectations (from Bloomberg / Econoday) of 54.0 to 56.1 (consensus 55.0).

For comparison, the Market PMI Services Index was released earlier - and declined from 51.4 to 51.0. From Markit:

August data indicated that the U.S. service sector continued to struggle for momentum, with both business activity and incoming new work expanding at slightly slower rates than in the previous month. This contributed to a moderation in job creation to its weakest since December 2014. Meanwhile, service providers are upbeat overall about the 12- month outlook for business activity, and the degree of positive sentiment remained comfortably above the survey-record low seen in June.

At 51.0 in August, the seasonally adjusted Markit final U.S. Services Business Activity Index dropped from 51.4 in July but remained above the 50.0 no-change value for the sixth consecutive month. The latest reading signalled only a marginal increase in business activity, and the pace of expansion was the weakest seen since the upturn began in March. Survey respondents noted that relatively subdued client demand and uncertainty ahead of the presidential election had acted as growth headwinds in August.

Service providers reported a moderate rise in new business volumes in August, with the pace of expansion remaining weaker than the average seen since the survey began in late-2009. Subdued demand patterns resulted in a renewed slowdown in employment growth during August. The latest survey marked six-and-a-half years of sustained job creation, but the latest rise in payroll numbers was the weakest since the end of 2014.

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 7.5 points and now is at 51.8.

ISM Services - Business Activity Sub-Index

The New Orders Index declined 8.9 and is currently at 51.4.

The complete ISM manufacturing and non-manufacturing survey table is below.

z pmiservices.png

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 August for the 79th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The NMI® registered 51.4 percent in August, 4.1 percentage points lower than the July reading of 55.5 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased substantially to 51.8 percent, 7.5 percentage points lower than the July reading of 59.3 percent, reflecting growth for the 85th consecutive month, at a notably slower rate in August. The New Orders Index registered 51.4 percent, 8.9 percentage points lower than the reading of 60.3 percent in July. The Employment Index decreased 0.7 percentage point in August to 50.7 percent from the July reading of 51.4 percent. The Prices Index decreased 0.1 percentage point from the July reading of 51.9 percent to 51.8 percent, indicating prices increased in August for the fifth consecutive month. According to the NMI®, 11 non-manufacturing industries reported growth in August. The majority of the respondents' comments indicate that there has been a slowing in the level of business for their respective companies."


The 11 non-manufacturing industries reporting growth in August — listed in order — are: Utilities; Real Estate, Rental & Leasing; Accommodation & Food Services; Finance & Insurance; Educational Services; Health Care & Social Assistance; Public Administration; Management of Companies & Support Services; Professional, Scientific & Technical Services; Information; and Construction. The seven industries reporting contraction in August — listed in order — are: Other Services; Mining; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Wholesale Trade; Retail Trade; and Arts, Entertainment & Recreation.

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.

>>>>> Scroll down to view and make comments <<<<<<

Permanent link to most recent post on this topic

Click here for Historical Releases Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Economic Releases


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Comments on Feyerabend’s ‘Against Method’, Part III
Taking a Wrench to Healthcare
News Blog
September 2016 New Home Sales Improve.
Higher GDP Growth In The Long Run Requires Higher Productivity Growth
Quantum Encryption Is Secure Because Information Encoded In A Quantum Particle Is Destroyed As Soon As It Is Measured
The Stock Market Is Up, But Mutual Fund Investors Are Fleeing
Infographic Of The Day: Google's Hidden Games
Early Headlines: Asia Srocks Mostly Lower, Energy HY Bonds Surge, Google Fiber Cutback, Shadow Banks Dominate Mortgages, NATO Crowds Russia, Coffee Surges And More
Top 10 American Misconceptions about China (Version 3)
Documentary Of The Week: Job Buffers Are More Efficient Than Unemployment Buffers
Typing Is The New Talking
Outsourcing Viewed As The Top Threat To U.S. Jobs
SOS, Extra Savings Needed For An Adequate Pension
Bob Dylan's Nobel Prize - And What Really Defines Literature
What We Read Today 25 October 2016
Investing Blog
This Or That? Technical Report 25 October 2016
Opinion Blog
What Triggers Collapse?
The Beer Goggles Stock Market
Precious Metals Blog
Inflation Surging As Platinum Signals Stock Market Decline
Live Markets
26Oct2016 Pre-Market Commentary: US Stock Markets Opened Lower As Apple Takes Center Stage Falling 3%, Market Indicators Remain In No Mans Land, Many Investors Sitting On Hands Awaiting Possible Fed Rate Change On Friday
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

Crowdfunding ....



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved