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ISM Non-Manufacturing Survey: Business Less Good in March 2011

The Institute for Supply Management (ISM) Non-Manufacturing Survey of Purchasing Managers in March 2011 indicates the economy is less good but still improving in March 2011.   Editorial note:  The ISM surveys have serious methodology issues in the lack of weighting in the responses.

With 90% of the employment in the service sector, it is important to understand – ahead of actual data – what is going on.  The non-manufacturing survey for the Institute For Supply Management is a relatively new survey – and no pundit yet has figured out to what it relates.  Although anything going up is good, Econintersect has tried to find something it tracks (analysis here).

Last week Econintersect analyzed the manufacturing ISM survey (analysis here).   Econintersect believes the subtle drop in the survey results were caused by improper seasonal adjustment factors.

This ISM non-manufacturing survey suffers from the same defect.  There was a positive improvement month-over-month (MoM) in the way the purchasing managers viewed business – but the seasonal adjustment factors reduced that view.

Purchasing Managers automatically seasonally adjust in their responses.

To understand the results of this survey, any number over 50 implies expansion.  No doubt this survey is showing business is expanding.

The most important elements of the breadbasket breakdown of this survey is new orders and backlog.  New orders conveys immediate order change while backlog shows the long term growth of business.  If the economy is contracting – backlog of orders contracts.

New Orders %
Higher
%
Same
%
Lower
Index
Mar 2011 36 55 9 64.1
Feb 2011 31 61 8 64.4
Jan 2011 36 48 16 64.9
Dec 2010 34 52 14 61.4

As shown in the table above, new orders actually improved in March with the following breakdown:

The 16 industries reporting growth of new orders in March — listed in order — are: Real Estate, Rental & Leasing; Management of Companies & Support Services; Mining; Utilities; Arts, Entertainment & Recreation; Wholesale Trade; Professional, Scientific & Technical Services; Information; Accommodation & Food Services; Finance & Insurance; Health Care & Social Assistance; Retail Trade; Educational Services; Construction; Transportation & Warehousing; and Public Administration. The only industry reporting contraction of new orders in March is Other Services.

Backlog of Orders %
Higher
%
Same
%
Lower
Index
Mar 2011 20 72 8 56.0
Feb 2011 15 74 11 52.0
Jan 2011 17 67 16 50.5
Dec 2010 15 67 18 48.5

The same as new orders, backlog also improved with the following breakdown:

The eight industries reporting an increase in order backlogs in March — listed in order — are: Management of Companies & Support Services; Mining; Real Estate, Rental & Leasing; Construction; Retail Trade; Wholesale Trade; Finance & Insurance; and Professional, Scientific & Technical Services. The three industries reporting lower backlog of orders in March are: Utilities; Other Services; and Public Administration.

For those not convinced that the ISM has a methodology problem, we already have hard data from both ADP (analysis here) and BLS (analysis here) for March 2011 showing growing seasonally adjusted employment in March.  The table below also shows employment improved – except the seasonally adjusted index shows a less good reading.

Employment %
Higher
%
Same
%
Lower
Index
Mar 2011 22 65 13 53.7
Feb 2011 20 68 12 55.6
Jan 2011 16 64 20 54.5
Dec 2010 18 66 16 52.6

Overall, the survey results appear to be showing moderate non-manufacturing business growth in March 2011.

Related Articles

ISM Non-Manufacturing:  Improved Conditions?  by Steven Hansen

ISM Manufacturing Survey Has Seasonal Issues in March 2011  by Steven Hansen

Implications of ADP & Challenger Jobs Data:  Very Slow Improvement  by Steven Hansen

Looking Forward into BLS Jobs Numbers  by Steven Hansen

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