The ISM non-manufacturing index bounced up slightly in December to 52.6 but only relative to November – September 2011 was 53.0, October was a little lower at 52.9, and November was lower still at 52.0. Above 50, business is expanding.
Yet, the most important elements of this survey remain clearly in expansion territory – and this survey remains 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 both have a good track record in spotting an incipient recession.
The December Business Activity Index was unchanged from November – but remains firmly in expansion territory. There is no perceptible trend line with this index which as mostly oscillated within the 55 to 60 range for the past two years.
The New Orders Index slightly improved from November. It is a very noisy index also with no perceptible trend line up or down. But again, this index remains away from recession territory.
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 52.6 percent in December, 0.6 percentage point higher than the 52 percent registered in November, and indicating continued growth at a slightly faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 56.2 percent, which is the same reading as reported in November, reflecting growth for the 29th consecutive month. The New Orders Index increased by 0.2 percentage point to 53.2 percent. The Employment Index increased 0.5 percentage point to 49.4 percent, indicating contraction in employment for the third time in the last four months. The Prices Index decreased 1.3 percentage points to 61.2 percent, indicating prices increased at a slower rate in December when compared to November. According to the NMI, 11 non-manufacturing industries reported growth in December. Respondents’ comments are mixed and vary by industry and company. Economic growth continues to be slowed by the lag in employment.”
INDUSTRY PERFORMANCE (Based on the NMI)
The 11 non-manufacturing industries reporting growth in December based on the NMI composite index — listed in order — are: Retail Trade; Professional, Scientific & Technical Services; Finance & Insurance; Information; Construction; Other Services; Wholesale Trade; Public Administration; Educational Services; Mining; and Transportation & Warehousing. The seven industries reporting contraction in December — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Health Care & Social Assistance; Real Estate, Rental & Leasing; Accommodation & Food Services; Utilities; and Arts, Entertainment & Recreation.
Caveats on the use of ISM Non-Manufacturing Index:
This is a survey, a quantification of opinion – not facts and data. However, as pointed out above, certain elements of this survey have good to excellent correlation to the economy. 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 much certainty about how it correlates to the economy. Again, two sub-indices (business activity and new orders) do have good correlation.
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. [note graph below uses November 2011 data]