Most know Econintersect’s disdain for surveys, and the Institute for Supply Management (ISM) Non-Manufacturing Survey of Purchasing Managers is a relatively new survey which is not tracking any economic benchmark.
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).
The May 2011 survey says conditions improved month-over-month slightly.
Yet, it is one of the few up items after weeks of really less good and bad news. The service sector of the economy does not look to be in the same situation as the goods producing sectors. Even the May Jobs reports from ADP (analysis here) and BLS (analysis here) show less good but not terrible data from this economic sector.
“The NMI registered 54.6 percent in May, 1.8 percentage points higher than the 52.8 percent registered in April, and indicating continued growth at a faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased 0.1 percentage point to 53.6 percent, reflecting growth for the 22nd consecutive month, but at a slightly slower rate than in April. The New Orders Index increased by 4.1 percentage points to 56.8 percent. The Employment Index increased 2.1 percentage points to 54 percent, indicating growth in employment for the ninth consecutive month and at a faster rate. The Prices Index decreased 0.5 percentage point to 69.6 percent, indicating that prices increased at a slightly slower rate in May when compared to April. According to the NMI, 16 non-manufacturing industries reported growth in May. Respondents’ comments are mostly positive about overall business conditions. There is a sentiment that there is a degree of stability in the economy; however, a continued concern exists over fuel costs and various volatile commodities.”
INDUSTRY PERFORMANCE (Based on the NMI)
The 16 industries reporting growth in May based on the NMI composite index — listed in order — are: Mining; Utilities; Arts, Entertainment & Recreation; Other Services; Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Management of Companies & Support Services; Transportation & Warehousing; Construction; Accommodation & Food Services; Health Care & Social Assistance; Information; Public Administration; Finance & Insurance; Professional, Scientific & Technical Services; and Wholesale Trade. The two industries reporting contraction in May are: Educational Services and Retail Trade.
WHAT RESPONDENTS ARE SAYING …
- “Business is O.K. Fuel prices and truck availability are starting to be a negative force on our supply chain.” (Agriculture, Forestry, Fishing & Hunting)
- “Business conditions are stabilized.” (Health Care & Social Assistance)
- “First and second quarters of 2011 have been up 25 percent over 2010; however, we expect a slight slowdown over the summer months.” (Professional, Scientific & Technical Services)
- “Uncertainty within commodity markets, especially fuel- and oil-based products, is putting pressure once again and forcing us to retrench as we look for stability. We expect the remainder of 2011 and at least the first two quarters of 2012 to be tumultuous.” (Retail Trade)
- “Volatile commodity prices adding stress to meat and dairy producers; increasing fuel prices are a problem for many.” (Wholesale Trade)
Did the economic growth slow in May? Jobs growth says it did. Auto sales says it did. But the service sector likely did better.
Hiring people is based on long term positive dynamics – not dynamics occurring in a single month. Further, employment dynamics are driven by small business – and it is unlikely they are participating in the ISM surveys. This is the problem in listening too heavily to these kinds of surveys.
Econintersect analyzed the ISM Manufacturing survey earlier this week (analysis here).
Econintersect sees new orders and backlog as the important elements of surveys as they point better to economic direction than the other elements. Looking at new orders, you can see the fluctuations and new orders does appear to be similar in the last 4 months – the ISM is simply a very noisy index.
Backlog, a very good indicator of real economic dynamics, continues to show growth.