Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index continues its growth cycle and improved. Markit PMI Services Index marginally improved showing little expansion.
Analyst Opinion of the ISM and Markit Services Survey
Both surveys improved and are in expansion. But the strenghths of each indice are so different you wonder if they were done on the same planet. I must reject both surveys as there is little to conclude except that the services portion of the economy is growing.
From Bloomberg / Econoday:
| Consensus Range | Consensus | Actual | |
| Markit Services | 52.0 to 52.5 | 52.3 | 53,1 |
| ISM Services | 54.1 to 56.6 | 55.8 | 57.5 |
Business activity continues to rise at historically subdued pace in April
- New business continues to increase but at modest pace
- Slowest rise in employment since July 2010
- Input price inflation accelerates to highest level in 21 months
- Growth of business activity was sustained in April, albeit at a relatively modest pace in line with fairly limited gains in new orders. With companies able to comfortably deal with current workloads, staffing levels rose at the slowest pace in nearly seven years
- On the price front, input costs increased at a sharper rate, but competitive pressures meant that charges were raised to the weakest degree for five months. The seasonally adjusted Markit U.S Services Business Activity Index continued to record above the crucial 50.0 no-change mark during April, registering 53.1, up from 52.8 in the previous month. Growth in activity has now been recorded in each survey period since March 2016.
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From the ISM Services report:
Economic activity in the non-manufacturing sector grew in April for the 88th 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., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee: “The NMI® registered 57.5 percent, which is 2.3 percentage points higher than the March reading of 55.2 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased to 62.4 percent, 3.5 percentage points higher than the March reading of 58.9 percent, reflecting growth for the 93rd consecutive month, at a faster rate in April. The New Orders Index registered 63.2 percent, 4.3 percentage points higher than the reading of 58.9 percent in March. The Employment Index decreased 0.2 percentage point in April to 51.4 percent from the March reading of 51.6 percent. The Prices Index increased 4.1 percentage points from the March reading of 53.5 percent to 57.6 percent, indicating prices increased for the 13th consecutive month, at a faster rate in April. According to the NMI®, 16 non-manufacturing industries reported growth. In April the non-manufacturing sector reflected strong growth after a slowing in the rate from the previous month. Respondents’ comments are mostly positive about business conditions and the overall economy.”
INDUSTRY PERFORMANCE
The 16 non-manufacturing industries reporting growth in April — listed in order — are: Wholesale Trade; Utilities; Arts, Entertainment & Recreation; Mining; Retail Trade; Construction; Professional, Scientific & Technical Services; Information; Management of Companies & Support Services; Public Administration; Health Care & Social Assistance; Real Estate, Rental & Leasing; Other Services; Finance & Insurance; Accommodation & Food Services; and Transportation & War
There are two sub-indexes in the ISM Services 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 improved 3.5 points and now is at 62.4.
ISM Services – Business Activity Sub-Index
The New Orders Index improved 4.3 and is currently at 63.2..
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.
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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