Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index continues its growth cycle and improved. Markit PMI Services Index likewise improved.
Analyst Opinion of the ISM and Markit Services Survey
Both services surveys are in expansion – and their intensity of growth and general trends match this month.
From Bloomberg / Econoday:
| Consensus Range | Consensus | Actual | |
| Markit Services | 54.8 to 55.7 | 55.7 | 56.8 |
| ISM Services | 56.8 to 59.0 | 58.0 | 58.6 |
Services business activity growth accelerates to fastest since April 2015
- Output growth quickens to strongest in over three years
- Capacity pressures intensify
- Input price inflation fastest since October 2013
- According to the latest survey data, business activity increased at a sharp rate across the U.S. service sector in May. Although the pace of new business growth softened slightly, it remained among the fastest in the last three years. Backlogs of work meanwhile accumulated at the quickest pace in over three years, prompting companies to boost capacity by upping the rate of job creation to the strongest since September 2015. The survey also showed rates of both input cost and selling price inflation accelerating.
- The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 56.8 in May, up from 54.6 in April. The latest survey data signalled the fastest output expansion since April 2015. The sharp increase in business activity was widely attributed to more favourable economic conditions and greater client demand. Increased marketing activity and customer interest was successfully converted to client wins in May, with new business levels rising at a steep pace. Although slightly weaker than that seen in April, the rate of expansion of new work was the thirdsharpest seen over the past three years.
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From the ISM Services report:
Economic activity in the non-manufacturing sector grew in May for the 100th 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 58.6 percent, which is 1.8 percentage points higher than the April reading of 56.8 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased to 61.3 percent, 2.2 percentage points higher than the April reading of 59.1 percent, reflecting growth for the 106th consecutive month, at a faster rate in May. The New Orders Index registered 60.5 percent, 0.5 percentage point higher than the reading of 60 percent in April. The Employment Index increased 0.5 percentage point in May to 54.1 percent from the April reading of 53.6 percent. The Prices Index increased by 2.5 percentage points from the April reading of 61.8 percent to 64.3 percent, indicating that prices increased in May for the 27th consecutive month. According to the NMI®, 14 non-manufacturing industries reported growth. The majority of respondents are optimistic about business conditions and the overall economy. There continue to be concerns about the uncertainty surrounding tariffs, trade agreements and the impact on cost of goods sold.”
INDUSTRY PERFORMANCE
The 14 non-manufacturing industries reported growth in May — listed in order — are: Wholesale Trade; Mining; Real Estate, Rental & Leasing; Construction; Retail Trade; Management of Companies & Support Services; Professional, Scientific & Technical Services; Transportation & Warehousing; Public Administration; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Finance & Insurance; Utilities; and Other Services. The only industry reporting a decrease is 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 improved 2.2 points and now is at 61.3
ISM Services – Business Activity Sub-Index
The New Orders Index improved 0.5 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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