Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, but again insignificantly declined from 58.6 to 57.1 (above 50 signals expansion). Important internals likewise contracted insignificantly.
This was above the range of market forecasts of 56.0 to 59.5 (consensus 58.0).
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 insignificantly declined and the New Orders Index modestly declined – but both remain 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 declined 2.9 points and now is at 60.0.
ISM Services – Business Activity Sub-Index
The New Orders Index lost 1.9 and is currently at 59.1.
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 57th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.
The NMI® registered 57.1 percent in October, 1.5 percentage points lower than the September reading of 58.6 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 60 percent, which is 2.9 percentage points lower than the September reading of 62.9 percent, reflecting growth for the 63rd consecutive month at a slower rate. The New Orders Index registered 59.1 percent, 1.9 percentage points lower than the reading of 61 percent registered in September. The Employment Index increased 1.1 percentage points to 59.6 percent from the September reading of 58.5 percent and indicates growth for the eighth consecutive month. The Prices Index decreased 3.1 percentage points from the September reading of 55.2 percent to 52.1 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI®, 16 non-manufacturing industries reported growth in October. The majority of the respondents’ comments reflect favorable business conditions; however, there is an indication that there continues to be a leveling off from the strong rate of growth of the preceding months.
INDUSTRY PERFORMANCE – The 16 non-manufacturing industries reporting growth in October — listed in order — are: Construction; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Transportation & Warehousing; Other Services; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Information; Health Care & Social Assistance; Mining; Accommodation & Food Services; Utilities; Real Estate, Rental & Leasing; and Public Administration. The two industries reporting contraction in October are: Arts, Entertainment & Recreation; and Finance & Insurance.
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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