Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index continues its growth cycle but declined. Markit PMI Services Index improved and remains in expansion.
Analyst Opinion of the ISM and Markit Services Survey
Both services surveys are in expansion – but their intensity of growth were different.
From Bloomberg / Econoday:
| Consensus Range | Consensus | Actual | |
| Markit Services | 54.1 to 54.9 | 54.1 | 54.0 |
| ISM Services | 57.0 to 59.7 | 59.0 | 58.8 |
Service sector growth remains strong in March
- Service sector output and new order growth ease…
- …but rates of expansion remain robust overall
- Upturn in employment reaches seven-month high
- March survey data indicated a strong expansion in business activity across the U.S. service sector. That said, the growth rate softened from that seen in February and was below the long-run series average. Similarly, the upturn in new business softened from the previous month but was sharp overall. In line with sustained increases in client demand, the rate of job creation accelerated to a seven-month high. Meanwhile, both input price and output charge inflation remained strong and above their respective series averages.
- The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 54.0 in March, down from 55.9 in February. Nonetheless, output growth was strong overall. Moreover, the index average for first three months of 2018 was broadly in line with the rate of expansion seen over 2017 as a whole. Panellists largely linked the upturn in business activity to diversification and more favourable demand conditions
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From the ISM Services report:
Economic activity in the non-manufacturing sector grew in March for the 98th 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 58.8 percent, which is 0.7 percentage point lower than the February reading of 59.5 percent. This represents continued growth in the non-manufacturing sector at a slightly slower rate. The Non-Manufacturing Business Activity Index decreased to 60.6 percent, 2.2 percentage points lower than the February reading of 62.8 percent, reflecting growth for the 104th consecutive month, at a slower rate in March. The New Orders Index registered 59.5 percent, 5.3 percentage points lower than the reading of 64.8 percent in February. The Employment Index increased 1.6 percentage points in March to 56.6 percent from the February reading of 55 percent. The Prices Index increased by 0.5 percentage point from the February reading of 61 percent to 61.5 percent, indicating that prices increased in March for the 25th consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth. Despite the slight dip in the NMI® composite index, the non-manufacturing sector enjoyed another month of strong growth in March. The cooling off of the New Orders Index possibly prevented an even stronger reading for the NMI® composite index. The majority of respondents remain positive about business conditions.”
INDUSTRY PERFORMANCE
The 15 non-manufacturing industries reporting growth in March — listed in order — are: Mining; Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Real Estate, Rental & Leasing; Wholesale Trade; Finance & Insurance; Management of Companies & Support Services; Professional, Scientific & Technical Services; Accommodation & Food Services; Public Administration; Construction; Health Care & Social Assistance; Other Services; and Utilities. The two industries reporting contraction in March are: Educational Services; and Information.
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 declined 2.2 points and now is at 60.6
ISM Services – Business Activity Sub-Index
The New Orders Index 5.3 and is currently at 59.5.
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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