Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index continues its growth cycle and improved. Markit PMI Services Index also improved showing modest expansion.
Analyst Opinion of the ISM and Markit Services Survey
Both services surveys show improvement. There is a difference in strength.
From Bloomberg / Econoday:
| Consensus Range | Consensus | Actual | |
| Markit Services | 53.0 to 53.4 | 53.0 | 54.2 |
| ISM Services | 54.0 to 57.1 | 56.5 | 57.4 |
Business activity growth accelerates further in June
- Strongest expansion in business activity since January
- New order growth also at five-month high
- Input prices rise at fastest pace in two years
- Business activity in the US service sector increased at the fastest pace since January in June, according to the latest survey data. Meanwhile, accelerations in new order and employment growth supported increased optimism in the sector. On the price front, input price inflation was the fastest since June 2015, while output charges rose at the strongest pace in the current 16-month sequence of inflation.
- The seasonally adjusted IHS Markit U.S. Services Business Activity Index registered 54.2 in June, up from 53.6 in May. This signalled a third month of accelerated growth in business activity among US service providers. Panellists linked growth to increased new orders and strong client demand. Overall, activity during the second quarter expanded at a solid pace that was only fractionally softer than that seen in the first quarter.
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From the ISM Services report:
Economic activity in the non-manufacturing sector grew in June for the 90th 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 57.4 percent, which is 0.5 percentage point higher than the May reading of 56.9 percent. This represents continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 60.8 percent, 0.1 percentage point higher than the May reading of 60.7 percent, reflecting growth for the 95th consecutive month, at a slightly faster rate in June. The New Orders Index registered 60.5 percent, 2.8 percentage points higher than the reading of 57.7 percent in May. The Employment Index decreased 2 percentage points in June to 55.8 percent from the May reading of 57.8 percent. The Prices Index increased 2.9 percentage points from the May reading of 49.2 percent to 52.1 percent, indicating prices increased in June after decreasing in May. According to the NMI®, 16 non-manufacturing industries reported growth. The non-manufacturing sector continued to reflect strength for the month of June. The majority of respondents’ comments are positive about business conditions and the overall economy.”
INDUSTRY PERFORMANCE
The 16 non-manufacturing industries reporting growth in June — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Management of Companies & Support Services; Accommodation & Food Services; Public Administration; Transportation & Warehousing; Professional, Scientific & Technical Services; Health Care & Social Assistance; Mining; Information; Utilities; Educational Services; Construction; Real Estate, Rental & Leasing; Retail Trade; and Finance & Insurance. The only industry reporting contraction in June is Other Services.
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 0.1 points and now is at 60.8.
ISM Services – Business Activity Sub-Index
The New Orders Index improved 2.8 and is currently at 60.5..
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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