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posted on 05 April 2017

March 2017 ISM and Markit Services Show Slowing Services Sector

Written by Steven Hansen

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle,but growth slowed 2.4 to 55.2 (above 50 signals expansion). Important internals were mixed. Markit PMI Services Index declined also but is close to no growth..

Analyst Opinion of the ISM and Markit Services Survey

Both surveys down - but both are in expansion. Just one more piece of data showing a slowing of the consumer segment of the economy.

This was below expectations (from Bloomberg / Econoday) of 56.0 to 58.0 (consensus 57.0).

For comparison, the Market PMI Services Index was released earlier - and declined from 53.8 to 52.8. From Markit:

March sees slowest growth of US service sector for six months

  • Demand reported to be rising at slower rate
  • Companies able to comfortably deal with new and existing business
  • Modest expansion of payroll numbers
  • Growth of the US service sector was maintained during March, albeit to a lesser degree than in the previous month as volumes of incoming business rose at a slower rate. Companies were subsequently able to make some further inroads into their work outstanding, with these efforts supported by a modest increase in payroll numbers. Latest data also showed input costs rising at a solid rate, although a desire to strengthen profitability meant higher costs were passed onto clients wherever possible.
  • The seasonally adjusted Markit U.S Services Business Activity Index remained above the 50.0 no-change mark in March to extend the current period of growth to 13 months. However, the index continued to fall from January's recent peak, reaching a six-month low of 52.8 (February: 53.8).


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 4.7 points and now is at 58.9.

ISM Services - Business Activity Sub-Index

The New Orders Index declined 2.3 and is currently at 58.9..

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 March for the 87th 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., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee: "The NMI® registered 55.2 percent, which is 2.4 percentage points lower than the February reading of 57.6 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 58.9 percent, 4.7 percentage points lower than the February reading of 63.6 percent, reflecting growth for the 92nd consecutive month, at a slower rate in March. The New Orders Index registered 58.9 percent, 2.3 percentage points lower than the reading of 61.2 percent in February. The Employment Index decreased 3.6 percentage points in March to 51.6 percent from the February reading of 55.2 percent. The Prices Index decreased 4.2 percentage points from the February reading of 57.7 percent to 53.5 percent, indicating prices increased for the 12th consecutive month, at a slower rate in March. According to the NMI®, 15 non-manufacturing industries reported growth in March. The sector continues to reflect growth; however, the rate of growth has declined since last month. The majority of respondents' comments indicate a positive outlook on business conditions and the overall economy. There were several comments about the uncertainty of future government policies on health care, trade and immigration, and the potential impact on business."


The 15 non-manufacturing industries reporting growth in March — listed in order — are: Management of Companies & Support Services; Utilities; Wholesale Trade; Mining; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Accommodation & Food Services; Retail Trade; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Construction; Finance & Insurance; Other Services; and Public Administration. The three industries reporting contraction in March are: Information; Educational Services; and Professional, Scientific & Technical Services

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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