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posted on 03 November 2017

October 2017 ISM and Markit Services Remain In Expansion

Written by Steven Hansen

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle and marginally improved. Markit PMI Services Index slightly declined but remains in expansion.

Analyst Opinion of the ISM and Markit Services Survey

Both services surveys are in expansion. I would weight the Markit numbers higher which would indicate a slightly slowing service sector.

From Bloomberg / Econoday:

Consensus Range Consensus Actual
Markit Services 55.0 to 55.9 55.9 55.3
ISM Services 56.0 to 60.0 58.7 60.1

From Markit:

Service sector business activity growth remains strong in October

  • Output growth in line with that seen in September
  • Upturn in new business softens to six-month low
  • Input price inflation eases to seven-month low
  • October survey data indicated a further rise in business activity across the US service sector. The rate of expansion was in line with that seen in September and strong overall. New business, however, grew at a weaker pace and signalled the softest upturn since April. Meanwhile, employment levels expanded at a solid rate, and backlogs also continued to rise. On the prices front, input costs and output charges rose further but eased to seven- and six-month lows, respectively. The latest survey data signalled robust business confidence, with the degree of optimism rising from that seen in September
  • The seasonally adjusted IHS Markit U.S. Services Business Activity Index registered 55.3 in October, unchanged from that seen in September. The latest index figure indicated a strong increase in overall business activity across the US service sector. Moreover, the rate of expansion was slightly faster than the long-run series average. Anecdotal evidence linked the rise in output to robust client demand and more favourable business conditions.


From the ISM Services report:

Economic activity in the non-manufacturing sector grew in October for the 94th 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 60.1 percent, which is 0.3 percentage point higher than the September reading of 59.8 percent. This represents continued growth in the non-manufacturing sector at a slightly faster rate. This is the highest NMI® reading since the index's debut in 2008. The highest reading among pre-2008 composite index calculations is 61.3 percent in August 2005. The Non-Manufacturing Business Activity Index increased to 62.2 percent, 0.9 percentage point higher than the September reading of 61.3 percent, reflecting growth for the 99th consecutive month, at a slightly faster rate in October. The New Orders Index registered 62.8 percent, 0.2 percentage point lower than the reading of 63 percent in September. The Employment Index increased 0.7 percentage point in October to 57.5 percent from the September reading of 56.8 percent. The Prices Index decreased by 3.6 percentage points from the September reading of 66.3 percent to 62.7 percent, indicating prices increased in October for the fifth consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. The non-manufacturing sector has reflected the third consecutive month of strong growth. Respondent comments continue to indicate a positive outlook for business conditions, and the economy as we begin the fourth quarter."


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

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 improved 0.9 points and now is at 62.2.

ISM Services - Business Activity Sub-Index

The New Orders Index declined 0.2 and is currently at 62.8.

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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