The ISM non-manufacturing index seems to be eroding – September 2011 was 53.0, October was a little lower at 52.9, and now November is lower still at 52.0. Above 50, business is expanding. Please see caveats at the end of this post on use of the data in this survey.
Yet, the most important elements of this survey have improved – and this survey is likely much stronger than appears at first glance.
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 November Business Activity Index recovered half of the October loss – and remains firmly in expansion territory. There is no perceptible trend line with this index.
The New Orders Index too took a dive in October, but its recovery in November was slight. 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 percent in November, 0.9 percentage point lower than the 52.9 percent registered in October, and indicating continued growth at a slightly slower rate in the non-manufacturing sector. This is the lowest reading since January 2010, when the index registered 50.7 percent. The Non-Manufacturing Business Activity Index increased 2.4 percentage points to 56.2 percent, reflecting growth for the 28th consecutive month. The New Orders Index increased by 0.6 percentage point to 53 percent. The Employment Index decreased 4.4 percentage points to 48.9 percent, indicating contraction in employment after one month of growth. The Prices Index increased 5.4 percentage points to 62.5 percent, indicating prices increased at a faster rate in November when compared to October. According to the NMI, 12 non-manufacturing industries reported growth in November. Respondents’ comments for the most part project continued slow, incremental growth. There still remains a strong concern about lagging employment.”
INDUSTRY PERFORMANCE (Based on the NMI) – The 12 non-manufacturing industries reporting growth in November based on the NMI composite index — listed in order — are: Retail Trade; Mining; Information; Utilities; Real Estate, Rental & Leasing; Management of Companies & Support Services; Accommodation & Food Services; Public Administration; Professional, Scientific & Technical Services; Wholesale Trade; Transportation & Warehousing; and Health Care & Social Assistance. The six industries reporting contraction in November — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Educational Services; Other Services; Finance & Insurance; and Construction.
Caveats on the use of ISM Non-Manufacturing 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 it does not have enough data history to have much certainty about how it correlates to the economy.
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.