Written by Steven Hansen
The September 2012 ISM non-manufacturing index continues its 2+ year growth cycle, and rose moderately from 53.7 to 55.1 (above 50 signals expansion). This was well above the market forecast of 52.0 to 53.0.
The economically intuitive components of this index remain in expansion territory, and is signalling the economy is not near a recession in September 2012. There are two sub-indexes in the NMI which have good correlations to the economy – the Business Activity Index and the New Orders Index – and both have good track records in spotting an incipient recession. Both are in expansion territory, and both improved significantly this month.
The Business Activity sub-index improved 4.3 points after declining 1.6 points last month. It is strongly in expansion territory – and is in the upper end of the range seen since the end of the recession.
ISM Services – Business Activity Sub-Index
The New Orders Index rose 4.0 points after declining 0.6 points last month. This sub-index is in the upper mid-range of the channel seen since the end of the Great Recession – and remains in expansion territory.
ISM Services – New Orders Sub-Index
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 and is not hard data.
From the ISM report:
“The NMI™ registered 55.1 percent in September, 1.4 percentage points higher than the 53.7 percent registered in August. This indicates continued growth this month at a faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 59.9 percent, which is 4.3 percentage points higher than the 55.6 percent reported in August, reflecting growth for the 38th consecutive month. The New Orders Index increased by 4 percentage points to 57.7 percent. The Employment Index decreased by 2.7 percentage points to 51.1 percent, indicating growth in employment for the second consecutive month but at a slower rate. The Prices Index increased 3.8 percentage points to 68.1 percent, indicating higher month-over-month prices when compared to August. According to the NMI™, 12 non-manufacturing industries reported growth in September. Respondents’ comments continue to be mixed; however, the majority indicate a slightly more positive perspective on current business conditions.”
INDUSTRY PERFORMANCE – The 12 non-manufacturing industries reporting growth in September — listed in order — are: Transportation & Warehousing; Retail Trade; Construction; Utilities; Educational Services; Management of Companies & Support Services; Finance & Insurance; Public Administration; Accommodation & Food Services; Health Care & Social Assistance; Professional, Scientific & Technical Services; and Information. The four industries reporting contraction in September are: Mining; Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; and Other Services.
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.
ISM Services Employment Sub-Index vs BLS Non-Farm Services Employment