Written by Steven Hansen
The February 2013 ISM non-manufacturing (aka services) index continues its 2+ year growth cycle, and is now at a 12 month high. The index advanced from 55.2 to 56.0 (above 50 signals expansion). This was within the range of market forecasts of 55.4 to 56.0.
The economically intuitive components of this index remain in expansion territory, and is signalling the economy is not near a recession in February 2013. 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 well inside expansion territory, and expanded this month.
The Business Activity sub-index expanded marginally 0.5 points. It is in expansion territory – and remains in the middle of the range seen since the end of the recession.
ISM Services – Business Activity Sub-Index
The New Orders Index rose a significant 3.8 points. This sub-index is in expansion territory – and is now on the high side of the range seen since the end of the recession.
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:
Economic activity in the non-manufacturing sector grew in February for the 38th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.
The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. “The NMI™ registered 56 percent in February, 0.8 percentage point higher than the 55.2 percent registered in January. This indicates continued growth at a slightly faster rate in the non-manufacturing sector. This month’s reading also reflects the highest NMI™ since February 2012, when the index registered 56.1 percent. The Non-Manufacturing Business Activity Index registered 56.9 percent, which is 0.5 percentage point higher than the 56.4 percent reported in January, reflecting growth for the 43rd consecutive month. The New Orders Index increased by 3.8 percentage points to 58.2 percent, and the Employment Index decreased 0.3 percentage point to 57.2 percent, indicating growth in employment for the seventh consecutive month. The Prices Index increased 3.7 percentage points to 61.7 percent, indicating prices increased at a faster rate in February when compared to January. According to the NMI™, 13 non-manufacturing industries reported growth in February. The majority of respondents’ comments reflect a growing optimism about the trend of the economy and overall business conditions.”
INDUSTRY PERFORMANCE – The 13 non-manufacturing industries reporting growth in February — listed in order — are: Management of Companies & Support Services; Real Estate, Rental & Leasing; Public Administration; Health Care & Social Assistance; Transportation & Warehousing; Wholesale Trade; Educational Services; Construction; Finance & Insurance; Other Services; Retail Trade; Professional, Scientific & Technical Services; and Utilities. The five industries reporting contraction in February are: Mining; Arts, Entertainment & Recreation; Information; Accommodation & Food Services; and Agriculture, Forestry, Fishing & Hunting.
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