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posted on 03 March 2017

February 2017 ISM and Markit Services Show Mixed Direction For Growth

Written by Steven Hansen

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle,and improved 1.1 to 57.6 (above 50 signals expansion). Important internals were mixed. Markit PMI Services Index declined but remains in expansion..

Analyst Opinion of the ISM and Markit Services Survey

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

This was above expectations (from Bloomberg / Econoday) of 55.5 to 59.0 (consensus 56.5).

For comparison, the Market PMI Services Index was released earlier - and declined from 55.6 to 53.8. From Markit:

Growth of service sector output dips to five-month low

  • Rates of expansion in activity and new work ease from January peaks
  • Outstanding business falls for first time in three months
  • Relatively muted price pressures signalled
  • February data pointed to a slowdown in U.S. service sector growth. Rates of expansion in activity, new work and employment all eased. Meanwhile, volumes of work-in-hand were depleted for the first time since November last year. Sentiment regarding the year ahead also weakened, despite remaining upbeat overall. On the price front, both input costs and output charges increased at slower rates.
  • The seasonally adjusted Markit U.S. Services Business Activity Index dropped from January's 14-month high of 55.6 to 53.8 in February. Though still signalling a solid expansion of service sector output, the latest reading was the lowest in five months and below the long-run series average (55.3). Panellists nevertheless indicated that activity had been bolstered by new contract wins and the launch of new products.


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 3.3 points and now is at 63.6.

ISM Services - Business Activity Sub-Index

The New Orders Index improved 2.6 and is currently at 61.2.

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 February for the 86th 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 57.6 percent, which is 1.1 percentage points higher than the January reading of 56.5 percent. This is the highest reading since October 2015 and represents continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 63.6 percent, 3.3 percentage points higher than the January reading of 60.3 percent, which is the highest reading since February 2011, when the index registered 63.8 percent, reflecting growth for the 91st consecutive month, at a faster rate in February. The New Orders Index registered 61.2 percent, 2.6 percentage points higher than the reading of 58.6 percent in January. This is the highest reading since August 2015, when the index registered 62.7 percent. The Employment Index increased 0.5 percentage point in February to 55.2 percent from the January reading of 54.7 percent. The Prices Index decreased 1.3 percentage points from the January reading of 59 percent to 57.7 percent, indicating prices increased for the 11th consecutive month, at a slower rate in February. According to the NMI®, 16 non-manufacturing industries reported growth in February. The non-manufacturing sector reflected strong growth in February after cooling off in January. Respondents' comments continue to be mixed, with some uncertainty; however, the majority indicate a positive outlook on business conditions and the overall economy."


The 16 non-manufacturing industries reporting growth in February — listed in order — are: Utilities; Mining; Management of Companies & Support Services; Other Services; Accommodation & Food Services; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Professional, Scientific & Technical Services; Finance & Insurance; Public Administration; Educational Services; Wholesale Trade; Arts, Entertainment & Recreation; Retail Trade; Transportation & Warehousing; and Construction. The two industries reporting contraction in February are: Real Estate, Rental & Leasing; and Information

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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