Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index continues its growth cycle,but declined 0.1 to 56.5 (above 50 signals expansion). Important internals were mixed. Markit PMI Services Index improved and remains in expansion..
Analyst Opinion of the ISM and Markit Services Survey
One survey slightly up and one slightly down – but both are in expansion. I am not a fan of surveys.
This was above expectations (from Bloomberg / Econoday) of 56.2 to 58.5 (consensus 57.1).
For comparison, the Market PMI Services Index was released earlier – and improved from 53.9 to 55.6. From Markit:
Job creation accelerates to its fastest since September 2015
- Fastest rise in business activity since November 2015
- New work expands at strongest pace for a yearand-a-half
- Business confidence highest since May 2015
- U.S. service providers started the year with the fastest rise in business activity since late-2015, driven by another robust increase in incoming new work. Greater willingness to spend among clients and signs of an upturn in domestic economic conditions also contributed to stronger business optimism across the service sector. January data signalled that services companies are more confident about their growth prospects than at any time since May 2015.
- The seasonally adjusted final Markit U.S. Services Business Activity Index rebounded to 55.6 in January, up from December’s three-month low of 53.9. Moreover, the latest reading was comfortably above the average for Q4 2016 (54.4) and signalled the fastest rate of business activity growth since November 2015. Higher levels of business activity were mainly linked to improved sales growth and a more supportive economic backdrop.
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There are two sub-indexes in the NMI which have good correlations to the economy – the Business Activity Index and the New Orders Index – both have good track records in spotting an incipient recession – both remaining in territories associated with expansion.
This index and its associated sub-indices are fairly volatile.
The Business Activity sub-index declined 0.3 points and now is at 60.3.
ISM Services – Business Activity Sub-Index
The New Orders Index declined 2.1 and is currently at 58.6.
The complete ISM manufacturing and non-manufacturing survey table is below.
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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 January for the 85th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM®Report On Business®.
The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee: “The NMI® registered 56.5 percent which is 0.1 percentage point lower than the seasonally adjusted December reading of 56.6. This represents continued growth in the non-manufacturing sector at a slightly slower rate. The Non-Manufacturing Business Activity Index decreased to 60.3 percent, 0.6 percentage point lower than the seasonally adjusted December reading of 60.9 percent, reflecting growth for the 90th consecutive month, at a slightly slower rate in January. The New Orders Index registered 58.6 percent, 2.1 percentage points lower than the seasonally adjusted reading of 60.7 percent in December. The Employment Index increased 2 percentage points in January to 54.7 percent from the seasonally adjusted December reading of 52.7 percent. The Prices Index increased 2.9 percentage points from the seasonally adjusted December reading of 56.1 percent to 59 percent; indicating prices increased for the 10th consecutive month, at a faster rate in January. According to the NMI®, 12 non-manufacturing industries reported growth in January. The non-manufacturing sector begins 2017 with a cooling-off in the rate of growth month-over-month. The sector still reflects strong growth. Respondents’ comments are mixed indicating both optimism and a degree of uncertainty in the business outlook as a result of the change in government administration.”
INDUSTRY PERFORMANCE
The 12 non-manufacturing industries reporting growth in January — listed in order — are: Mining; Other Services; Utilities; Health Care & Social Assistance; Finance & Insurance; Public Administration; Accommodation & Food Services; Retail Trade; Construction; Wholesale Trade; Professional, Scientific & Technical Services; and Management of Companies & Support Services. The five industries reporting contraction in January are: Real Estate, Rental & Leasing; Educational Services; Transportation & Warehousing; Information; and Arts, Entertainment & Recreation.
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.
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