Written by Steven Hansen
The October 2013 ISM non-manufacturing (aka services) index continues its growth cycle improving from 54.4 to 55.4 (above 50 signals expansion) – and were positive but mixed on direction of growth.
This was slightly above the range of market forecasts of 54.0 to 55.0.
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. The Business Activity Index improved while the New Orders Index declined – but both are well inside expansion territory.
This index and its associated sub-indices are fairly volatile – and one needs to step back from the data and view this index over longer periods than a single month.
The Business Activity sub-index gained 4.6 points and now is at 59.7.
ISM Services – Business Activity Sub-Index
The New Orders Index declined 2.8 and is currently at 56.8.
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 October for the 46th 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, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. “The NMI® registered 55.4 percent in October, 1 percentage point higher than September’s reading of 54.4 percent. This indicates continued growth at a faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased to 59.7 percent, which is 4.6 percentage points higher than the 55.1 percent reported in September, reflecting growth for the 51st consecutive month. The New Orders Index decreased by 2.8 percentage points to 56.8 percent, and the Employment Index increased 3.5 percentage points to 56.2 percent, indicating growth in employment for the 15th consecutive month. The Prices Index decreased 1.1 percentage points to 56.1 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI®, 10 non-manufacturing industries reported growth in October. Respondents’ comments are mixed with the majority reflecting an uptick in business. A number of respondents indicate that they are negatively impacted by the government shutdown.”
INDUSTRY PERFORMANCE – The 10 non-manufacturing industries reporting growth in October — listed in order — are: Management of Companies & Support Services; Other Services; Retail Trade; Information; Educational Services; Wholesale Trade; Real Estate, Rental & Leasing; Public Administration; Professional, Scientific & Technical Services; and Finance & Insurance. The eight industries reporting contraction in October — listed in order — are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Construction; Mining; Utilities; Health Care & Social Assistance; and Accommodation & Food 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