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posted on 03 November 2016

October 2016 ISM and Markit Services Index Are At The Same Level

Written by Steven Hansen

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, but declined from 57.1 to 54.8 (above 50 signals expansion). Important internals declined. Markit PMI Services Index also released today again improved and remains in expansion..

Analyst Opinion of the ISM and Markit Services Survey

In the bizarro world of surveys - one survey up and one survey down - but their levels are currently the same. The problem here is that the trends are opposite meaning we have no clue really what is going on.

This was below expectations (from Bloomberg / Econoday) of 55.0 to 57.4 (consensus 56.1).

For comparison, the Market PMI Services Index was released earlier - and improved from 52.3 to 54.8. From Markit:

Business activity growth picks up, but job creation eases to 3½ year low

  • Services business activity expands at fastest pace since November 2015
  • Robust increase in new work, but job creation remains subdued
  • Input price inflation accelerates to 15-month high
  • October data pointed to a relatively strong month for the US service sector, with business activity and incoming new work rising at the fastest rates since November 2015. Survey respondents attributed the recovery in growth momentum to improving domestic economic conditions and greater consumer spending in particular. The latest figures also highlighted that inflationary pressures picked up since September, with average cost burdens rising at the strongest pace for 15 months.
  • Adjusted for seasonal influences, the final Markit U.S. Services Business Activity Index registered 54.8 in October, up markedly from 52.3 in September and above the crucial 50.0 no-change value for the eighth consecutive month. The latest reading signalled a robust upturn in service sector output, with the rate of expansion the steepest for almost one year.


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 2.6 points and now is at 57.7.

ISM Services - Business Activity Sub-Index

The New Orders Index declined 2.3 and is currently at 57.7.

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 October for the 81st consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM®Report On Business®.

The NMI® registered 54.8 percent in October, 2.3 percentage points lower than the September reading of 57.1 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 57.7 percent, 2.6 percentage points lower than the September reading of 60.3 percent, reflecting growth for the 87th consecutive month, at a slower rate in October. The New Orders Index registered 57.7 percent, 2.3 percentage points lower than the reading of 60 percent in September. The Employment Index decreased 4.1 percentage points in October to 53.1 percent from the September reading of 57.2 percent. The Prices Index increased 2.6 percentage points from the September reading of 54 percent to 56.6 percent, indicating prices increased in October for the seventh consecutive month. According to the NMI®, 13 non-manufacturing industries reported growth in October. There has been a slight cooling-off in the non-manufacturing sector month-over-month, indicating that last month's increases weren't sustainable. Respondent's comments remain mostly positive about business conditions and the overall economy. Several comments were made about the uncertainty on the impact of the upcoming U.S. presidential election.


The 13 non-manufacturing industries reporting growth in October — listed in order — are: Transportation & Warehousing; Construction; Other Services; Management of Companies & Support Services; Information; Professional, Scientific & Technical Services; Real Estate, Rental & Leasing; Wholesale Trade; Utilities; Finance & Insurance; Retail Trade; Accommodation & Food Services; and Health Care & Social Assistance. The five industries reporting contraction in October are: Educational Services; Mining; Agriculture, Forestry, Fishing & Hunting; Public Administration; 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.

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