Written by Steven Hansen
The February 2012 ISM non-manufacturing index continues a strong grow cycle rising from 56.8 to 57.3 (above 50 signals expansion). The number was above market estimates ranging from 56.0 to 57.0. The most important elements of this survey remain clearly in expansion territory – and this survey continues to be strong.
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. Both of these indices are saying the economy is improving, and a recession is not in the cards.
The Business Activity Index was up significantly – and remains firmly in expansion territory.
The New Orders Index continues its significant improvement. It is a very noisy index now also with an upward trend line. This index remains well 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. However, this an opinion survey; this is not hard data.
From the ISM report:
“The NMI registered 57.3 percent in February, 0.5 percentage point higher than the 56.8 percent registered in January, and indicating continued growth at a faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 62.6 percent, which is 3.1 percentage points higher than the 59.5 percent reported in January, reflecting growth for the 31st consecutive month. The New Orders Index increased by 1.8 percentage points to 61.2 percent, and the Employment Index decreased by 1.7 percentage points to 55.7 percent, indicating continued growth in employment, but at a slower rate. The Prices Index increased 4.9 percentage points to 68.4 percent, indicating prices increased at a faster rate in February when compared to January. According to the NMI, 14 non-manufacturing industries reported growth in February. The majority of comments from the respondents reflect a growing level of optimism about business conditions and the overall economy. There is a concern about inflation, rising fuel prices and petroleum-based product costs.”
INDUSTRY PERFORMANCE – The 14 non-manufacturing industries reporting growth in February — listed in order — are: Real Estate, Rental & Leasing; Educational Services; Wholesale Trade; Other Services; Transportation & Warehousing; Finance & Insurance; Construction; Arts, Entertainment & Recreation; Public Administration; Accommodation & Food Services; Utilities; Professional, Scientific & Technical Services; Mining; and Information. The three industries reporting contraction in February are: Management of Companies & Support Services; Retail Trade; and Health Care & Social Assistance.
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.