Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, and rose moderately from 57.1 to 59.3 (above 50 signals expansion). Important internals likewise contracted insignificantly.
This was within the range of market forecasts of 54.4 to 58.5 (consensus 57.3).
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 and the New Orders Index improved – with both remaining in territories associated with moderate expansion.
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 improved 4.4 points and now is at 64.4.
ISM Services – Business Activity Sub-Index
The New Orders Index gained 2.3 and is currently at 61.4.
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 58th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.
The NMI® registered 59.3 percent in November, 2.2 percentage points higher than the October reading of 57.1 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased to 64.4 percent, which is 4.4 percentage points higher than the October reading of 60 percent, reflecting growth for the 64th consecutive month at a faster rate. The New Orders Index registered 61.4 percent, 2.3 percentage points higher than the reading of 59.1 percent registered in October. The Employment Index decreased 2.9 percentage points to 56.7 percent from the October reading of 59.6 percent and indicates growth for the ninth consecutive month. The Prices Index increased 2.3 percentage points from the October reading of 52.1 percent to 54.4 percent, indicating prices increased at a faster rate in November when compared to October. According to the NMI®, 14 non-manufacturing industries reported growth in November. Comments from the majority of respondents indicate that business conditions are on track for continued growth. The respondents have also stated that there is some strain on capacity due to the month-over-month increase in activity.
INDUSTRY PERFORMANCE – The 14 non-manufacturing industries reporting growth in November — listed in order — are: Retail Trade; Construction; Agriculture, Forestry, Fishing & Hunting; Other Services; Health Care & Social Assistance; Accommodation & Food Services; Finance & Insurance; Professional, Scientific & Technical Services; Public Administration; Wholesale Trade; Information; Management of Companies & Support Services; Mining; and Transportation & Warehousing. The three industries reporting contraction in November are: Arts, Entertainment & Recreation; Utilities; and Educational 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
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