Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index and the Markit PMI Services Index continued their growth cycle but declined.
Analyst Opinion of the ISM and Markit Services Survey
Both services surveys are in expansion – and declined this month. These are weaker reports than last month.
From Econoday:
| Consensus Range | Consensus | Actual | |
| Markit Services | 54.8 to 55.1 | 54.8 | 55.3 |
| ISM Services | 54.0 to 59.5 | 58.0 | 56.1 |
From Markit:
Solid upturn in services activity, but business expectations drop to lowest since December 2017
- Business activity and new order growth rates soften, but remain strong
- Degree of business optimism at 15-month low
- Pace of cost inflation relatively subdued
- March data signalled a further strong expansion in business activity across the U.S service sector. The rise was slightly softer than that seen in February, but was nonetheless supported by a solid increase in new orders and a further upturn in new business from abroad. On the prices front, inflationary pressures eased in March. The rate of increase in charges was the slowest since October 2017 and input cost inflation posted below the series trend. Despite strong output growth and client demand, business confidence dipped to the lowest level since December 2017.
- The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 55.3 in March, down slightly from 56.0 in February. The rate of expansion was broadly in line with the series average and rounded off a strong start to 2019. The first quarterly average signalled the fastest service sector output growth since the second quarter of 2018. Moreover, March data indicated the second-quickest upturn in business activity since July 2018, with firms linking this to robust client demand.
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From the ISM Services report:
Economic activity in the non-manufacturing sector grew in March for the 110th 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 56.1 percent, which is 3.6 percentage points lower than the February reading of 59.7 percent. This represents continued growth in the non-manufacturing sector, at a slower rate. The Non-Manufacturing Business Activity Index decreased to 57.4 percent, 7.3 percentage points lower than the February reading of 64.7 percent, reflecting growth for the 116th consecutive month, at a slower rate in March. The New Orders Index registered 59 percent, 6.2 percentage points lower than the reading of 65.2 percent in February. The Employment Index increased 0.7 percentage point in March to 55.9 percent from the February reading of 55.2 percent. The Prices Index increased 4.3 percentage points from the February reading of 54.4 percent to 58.7 percent, indicating that prices increased in March for the 22nd consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. The non-manufacturing sector’s growth cooled off in March after strong growth in February. Respondents remain mostly optimistic about overall business conditions and the economy. They still have underlying concerns about employment resources and capacity constraints.”
The 16 non-manufacturing industries reporting growth in March — listed in order — are: Construction; Other Services; Professional, Scientific & Technical Services; Health Care & Social Assistance; Accommodation & Food Services; Public Administration; Mining; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Real Estate, Rental & Leasing; Information; Arts, Entertainment & Recreation; Utilities; Finance & Insurance; and Wholesale Trade. The two industries that contracted in March are: Educational Services; 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 declined 7.3 points and now is at 57.4
- The New Orders Index declined 6.2 and is currently at 59.0
The complete ISM manufacturing and non-manufacturing survey table are 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 the 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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