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posted on 05 June 2017

May 2017 ISM and Markit Services Slightly Mixed Views of the Service Sector

Written by Steven Hansen

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle but declined. Markit PMI Services Index marginally improved showing modest expansion.

Analyst Opinion of the ISM and Markit Services Survey

One survey maginally up whilst the other marginally down. I would assume there is little change in the rate of expansion.

From Bloomberg / Econoday:

Consensus Range Consensus Actual
Markit Services 52.0 to 52.5 54.0 53.6
ISM Services 54.1 to 56.6 57.0 56.9

From Markit:

New business growth accelerates in May

  • New business grows at fastest pace since January
  • Business activity continues to expand at solid rate
  • Job creation accelerates to three-month high
  • Growth of business activity in the US service sector accelerated slightly in May, reaching a three-month high. This extended the current period of activity growth to 15 months. New business also expanded at a quicker pace, and grew at the fastest rate since January. Subsequently, firms added to their payrolls again with the rate of growth accelerating to a three-month high. Input price inflation softened fractionally, while prices charged by US service providers increased at a faster pace.
  • The seasonally adjusted Business Activity Index continued to run above the crucial 50.0 no-change mark during May. A reading of 53.6, up from 53.1 in April, signalled the largest rise in overall activity since February. The rate of growth in new business meanwhile accelerated from April to a four-month high. Panellists noted that stronger demand from new and existing clients led to increased volumes of new orders.


From the ISM Services report:

Economic activity in the non-manufacturing sector grew in May for the 89th 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 56.9 percent, which is 0.6 percentage point lower than the April reading of 57.5 percent. This represents continued growth in the non-manufacturing sector at a slightly slower rate. The Non-Manufacturing Business Activity Index decreased to 60.7 percent, 1.7 percentage points lower than the April reading of 62.4 percent, reflecting growth for the 94th consecutive month, at a slower rate in May. The New Orders Index registered 57.7 percent, 5.5 percentage points lower than the reading of 63.2 percent in April. The Employment Index increased 6.4 percentage points in May to 57.8 percent from the April reading of 51.4 percent. The Prices Index decreased 8.4 percentage points from the April reading of 57.6 percent to 49.2 percent, indicating prices decreased in May for the first time after 13 consecutive months of increasing. According to the NMI®, 17 non-manufacturing industries reported growth. Although the non-manufacturing sector's growth rate dipped in May, the sector continues to reflect strength, buoyed by the strong rate of growth in the Employment Index. The majority of respondents' comments continue to indicate optimism about business conditions and the overall economy."


The 17 non-manufacturing industries reporting growth in May — listed in order — are: Real Estate, Rental & Leasing; Construction; Accommodation & Food Services; Utilities; Arts, Entertainment & Recreation; Wholesale Trade; Mining; Health Care & Social Assistance; Management of Companies & Support Services; Professional, Scientific & Technical Services; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Finance & Insurance; Public Administration; Transportation & Warehousing; Information; and Other Services. The only industry reporting contraction in May is Educational Services.

There are two sub-indexes in the ISM Services 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 1.7 points and now is at 60.7.

ISM Services - Business Activity Sub-Index

The New Orders Index declined 5.5 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.

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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