Written by Steven Hansen
The November 2013 ISM non-manufacturing (aka services) index continues its growth cycle, but weakened from 55.4 to 53.9 (above 50 signals expansion).
This was below the range of market forecasts of 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. Both the Business Activity Index and 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 lost 4.2 points and now is at 55.5.
ISM Services – Business Activity Sub-Index
The New Orders Index declined 0.4 and is currently at 56.4.
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 November for the 47th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.
“The NMI®registered 53.9 percent in November, 1.5 percentage points lower than October’s reading of 55.4 percent. This indicates continued growth at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 55.5 percent, which is 4.2 percentage points lower than the 59.7 percent reported in October, reflecting growth for the 52nd consecutive month, but at a slower rate. The New Orders Index decreased slightly by 0.4 percentage point to 56.4 percent, and the Employment Index decreased 3.7 percentage points to 52.5 percent, indicating growth in employment for the 16th consecutive month, but at a slower rate. The Prices Index decreased 3.9 percentage points to 52.2 percent, indicating prices increased at a slower rate in November when compared to October. According to the NMI®, 11 non-manufacturing industries reported growth in November. Respondents’ comments for the most part indicate the non-manufacturing sector is maintaining a steady course of incremental growth and a positive outlook for the upcoming months.”
INDUSTRY PERFORMANCE – The 11 non-manufacturing industries reporting growth in November — listed in order — are: Transportation & Warehousing; Retail Trade; Management of Companies & Support Services; Other Services; Information; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Finance & Insurance; Public Administration; Educational Services; and Professional, Scientific & Technical Services. The six industries reporting contraction in November — listed in order — are: Mining; Accommodation & Food Services; Utilities; Health Care & Social Assistance; Arts, Entertainment & Recreation; and Construction.
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