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posted on 05 January 2017

December 2016 ISM and Markit Services Show Little Change In Rate of Growth

Written by Steven Hansen

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle,but remained unchanged at 57.2 (above 50 signals expansion). Important internals were mixed. Markit PMI Services Index also released today declined but remains in expansion..

Analyst Opinion of the ISM and Markit Services Survey

One survey unchanged and one slightly down - but both are in expansion. I am not a fan of surveys.

This was above expectations (from Bloomberg / Econoday) of 56.0 to 57.6 (consensus 56.8).

For comparison, the Market PMI Services Index was released earlier - and declined from 54.8 to 53.9. From Markit:

Job creation accelerates to its fastest since September 2015

  • Robust rise in service sector payrolls
  • Solid rates of activity and new business growth in December
  • Prices charged increase at sharpest rate for 18 months
  • December data highlighted a sustained upturn in business activity and incoming new work across the U.S. service sector. Greater workloads and improved confidence towards the business outlook in turn contributed to the fastest rise in payroll numbers since September 2015. However, the latest survey indicated that inflationary pressures pricked up again in December, with prices charged by service providers increasing at the steepest pace for one-and-a-half years.
  • At 53.9 in December, the seasonally adjusted Markit final U.S. Services Business Activity Index dropped from 54.6 in November to signal the slowest upturn in service sector activity for three months. Nonetheless, the latest reading was well above the neutral 50.0 threshold and pointed to a solid pace of expansion. Moreover, the average reading during the final quarter of 2016 (54.4) was the strongest since Q4 2015.

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 declined 0.3 points and now is at 61.4.

ISM Services - Business Activity Sub-Index

The New Orders Index improved 4.6 and is currently at 61.6.

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 December for the 83rd 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 December, matching the November figure. This represents continued growth in the non-manufacturing sector at the same rate. The Non-Manufacturing Business Activity Index decreased to 61.4 percent, 0.3 percentage point lower than the November reading of 61.7 percent, reflecting growth for the 89th consecutive month, at a slightly slower rate in December. The New Orders Index registered 61.6 percent, 4.6 percentage points higher than the reading of 57 percent in November. The Employment Index decreased 4.4 percentage points in December to 53.8 percent from the November reading of 58.2 percent. The Prices Index increased 0.7 percentage point from the November reading of 56.3 percent to 57 percent, indicating prices increased in December for the ninth consecutive month at a slightly faster rate. According to the NMI®, 12 non-manufacturing industries reported growth in December. The non-manufacturing sector closed out the year strong maintaining its rate of growth month-over-month. Respondents' comments are mostly positive about business conditions and the overall economy."

INDUSTRY PERFORMANCE

The 12 non-manufacturing industries reporting growth in December — listed in order — are: Mining; Retail Trade; Finance & Insurance; Information; Arts, Entertainment & Recreation; Construction; Other Services; Health Care & Social Assistance; Professional, Scientific & Technical Services; Utilities; Transportation & Warehousing; and Accommodation & Food Services. The three industries reporting contraction in December are: Public Administration; Wholesale Trade; and Agriculture, Forestry, Fishing & Hunting.

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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