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posted on 05 December 2016

November 2016 ISM and Markit Services Index Mixed

Written by Steven Hansen

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle,and improved from 54.8 to 57.2 (above 50 signals expansion). Important internals were mixed. Markit PMI Services Index also released today again improved and remains in expansion..

Analyst Opinion of the ISM and Markit Services Survey

One survey up and one slightly down. The ISM survey improved much more but an important internal declined. The Markit survey seemed more upbeat but its index was lower.

This was above expectations (from Bloomberg / Econoday) of 54.9 to 56.5 (consensus 55.5).

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

New business growth accelerates to 12-month high in November

  • Robust and accelerated rise in new work
  • Business activity growth holds close to October's 11-month peak
  • Job creation edges up again in November
  • U.S. service providers experienced a robust expansion of business activity in November, helped by the fastest rise in new work for one year. Greater workloads and resilient business confidence led to a further upturn in the pace of job creation from the three-and-a-half year low recorded in September. Meanwhile, input cost inflation eased slightly during November, which contributed to the slowest rise in average prices charged by service sector companies since April.
  • The seasonally adjusted final Markit U.S. Services Business Activity Index registered 54.6 in November, to remain above the 50.0 no-change value for the ninth consecutive month. Although the latest reading was fractionally lower than in October (54.8), the rate of growth remained stronger than at any time in the first half of 2016. Survey respondents noted that improved client confidence and a favourable domestic economic backdrop had helped to boost business activity in November.

z%20markit_services.png

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 improved 4 points and now is at 61.7.

ISM Services - Business Activity Sub-Index

The New Orders Index declined 0.7 and is currently at 57.0.

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 November for the 82nd 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 57.2 percent in November, 2.4 percentage points higher than the October reading of 54.8 percent. This represents continued growth in the non-manufacturing sector at a faster rate. This is the 12-month high, and the highest reading since the 58.3 registered in October of 2015. The Non-Manufacturing Business Activity Index increased to 61.7 percent, 4 percentage points higher than the October reading of 57.7 percent, reflecting growth for the 88th consecutive month, at a faster rate in November. The New Orders Index registered 57 percent, 0.7 percentage point lower than the reading of 57.7 percent in October. The Employment Index increased 5.1 percentage points in November to 58.2 percent from the October reading of 53.1 percent. The Prices Index decreased 0.3 percentage point from the October reading of 56.6 percent to 56.3 percent, indicating prices increased in November for the eighth consecutive month at a slightly slower rate. According to the NMI®, 14 non-manufacturing industries reported growth in November. The Non-Manufacturing sector rebounded after a slight cooling-off in October. The majority of respondents' comments are positive about business conditions and the direction of the overall economy."

INDUSTRY PERFORMANCE

The 14 non-manufacturing industries reporting growth in November — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Retail Trade; Arts, Entertainment & Recreation; Transportation & Warehousing; Other Services; Management of Companies & Support Services; Construction; Finance & Insurance; Professional, Scientific & Technical Services; Accommodation & Food Services; Information; Health Care & Social Assistance; Wholesale Trade; and Mining. The two industries reporting contraction in November are: Real Estate, Rental & Leasing; and Public Administration.

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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