The ISM non-manufacturing index fell slightly from 53.0 to 52.9 in October 2011.
Above 50, business is expanding. Please see caveats at the end of this post on use of the data in this survey.
There are two sub-indexes in the NMI, which have a good correlation to the economy – the Business Activity Index and the New Orders Index – and have a good track record in spotting a recession.
The Business Activity Index dropped a good amount in October – but remains firmly in expansion territory. There is no perceptible trend line with this index.
The New Orders Index too took a dive in October – it is a very noisy index also with no perceptible trend line.
The complete ISM manufacturing and non-manufacturing survey table is below.
Econintersect does give serious consideration to this survey as the service sector accounts for 80% of the economy and 90% of employment – but in a general sense similar to overhearing a conversation at a cocktail party. This is not hard data.
From the ISM report:
“The NMI registered 52.9 percent in October, 0.1 percentage point lower than the 53 percent registered in September, and indicating continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased 3.3 percentage points to 53.8 percent, reflecting growth for the 27th consecutive month. The New Orders Index decreased by 4.1 percentage points to 52.4 percent. The Employment Index increased 4.6 percentage points to 53.3 percent, indicating growth in employment after one month of contraction. The Prices Index decreased 4.8 percentage points to 57.1 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI, eight non-manufacturing industries reported growth in October. Even though there is month-over-month growth in the Employment Index, respondents are still expressing concern over available labor resources and job growth. The continued strong push for inventory reduction by supply management professionals has resulted in contraction in the Inventories Index for the first time in eight months. Respondents’ comments are mixed and reflect concern about future business conditions.”
INDUSTRY PERFORMANCE (Based on the NMI)
The eight non-manufacturing industries reporting growth in October based on the NMI composite index — listed in order — are: Management of Companies & Support Services; Information; Transportation & Warehousing; Mining; Retail Trade; Other Services; Accommodation & Food Services; and Professional, Scientific & Technical Services. The eight industries reporting contraction in October — listed in order — are: Arts, Entertainment & Recreation; Public Administration; Real Estate, Rental & Leasing; Educational Services; Finance & Insurance; Utilities; Construction; and Wholesale Trade.
Overall, the non-manufacturing ISM survey in October 2011 is uglier than it first appears. For now, I will just assume it is noise. A continuing downtrend next month may set off warning bells.
Caveats on the use of ISM Non-Maufacturing Index:
This is a survey, a quantification of opinion rather than facts and data. Opinion surveys are useful for general impressions but Econintersect finds they do not end up being consistent compared to hard economic data that comes later, and usually miss economic turning points.
The ISM non-manufacturing index (NMI) is so new that its ups and downs cannot be correlated with a long history to the economic situation as it is unfolding.
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, month-to-month movements have not correlated with the BLS Service Sector Employment data.