Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index and the Markit PMI Services Index continued their growth cycle and significantly improved.
Analyst Opinion of the ISM and Markit Services Survey
Both services surveys are in expansion – and improved this month. This is a much stronger report than last month.
From Econoday:
| Consensus Range | Consensus | Actual | |
| Markit Services | 53.9 to 56.2 | 56.2 | 56.0 |
| ISM Services | 56.0 to 58.0 | 57.2 | 59.7 |
From Markit:
Business activity growth accelerates to seven month high in February
- Output increases at sharp rate
- New business expansion also picks up pace
- Faster rises in employment and backlogs highlight strain on capacity
- Business activity across the U.S. service sector continued to improve in February, with the rate of expansion quickening to the fastest since July 2018. The rise in output was supported by a sharp increase in new business and a return to growth in new export orders. Moreover, foreign demand rose at the strongest rate since last May. Subsequently, pressure was placed on capacity and led to the fastest rise in outstanding business for nine months. In expectation of further new order growth and in an effort to clear backlogs, the pace of job creation reached a five-month high and was strong overall. That said, service providers were less upbeat towards the year-ahead outlook for business activity.
- The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 56.0 in February, up from 54.2 in January and broadly in line with the earlier released ‘flash’ figure of 56.2. The rise in business activity was the quickest since last July and above the long-run series trend. Panellists reported that greater client demand and favourable economic conditions were key driving factors behind the upturn.
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From the ISM Services report:
Economic activity in the non-manufacturing sector grew in February for the 109th 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 59.7 percent, which is 3 percentage points higher than the January reading of 56.7 percent. This represents continued growth in the non-manufacturing sector, at a faster rate. The Non-Manufacturing Business Activity Index increased to 64.7 percent, 5 percentage points higher than the January reading of 59.7 percent, reflecting growth for the 115th consecutive month, at a faster rate in February. The New Orders Index registered 65.2 percent, 7.5 percentage points higher than the reading of 57.7 percent in January. The Employment Index decreased 2.6 percentage points in February to 55.2 percent from the January reading of 57.8 percent. The Prices Index decreased 5 percentage points from the January reading of 59.4 percent to 54.4 percent, indicating that prices increased in February for the 21st consecutive month. According to the NMI®, all 18 non-manufacturing industries reported growth. The non-manufacturing sector’s growth rate rebounded in February after cooling off in January. Respondents are concerned about the uncertainty of tariffs, capacity constraints and employment resources; however, they remain mostly optimistic about overall business conditions and the economy.”
INDUSTRY PERFORMANCE
The 18 non-manufacturing industries reporting growth in February — listed in order — are: Transportation & Warehousing; Management of Companies & Support Services; Wholesale Trade; Mining; Educational Services; Utilities; Other Services; Real Estate, Rental & Leasing; Construction; Health Care & Social Assistance; Professional, Scientific & Technical Services; Public Administration; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Information; Accommodation & Food Services; Arts, Entertainment & Recreation; and Retail Trade.
ISM Services Index
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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 5.0 points and now is at 64.7
- The New Orders Index improved 7.5 and is currently at 65.2
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.
From Econoday:
The ISM non-manufacturing survey does not compile a composite index like its manufacturing cousin. The business activity index, which is actually akin to the production index in the manufacturing survey, is widely followed as the key figure from this survey.
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