Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index and the Markit PMI Services Index continued their growth cycle but both declined.
Analyst Opinion of the ISM and Markit Services Survey
Both services surveys are in expansion. The Markit Services index is near no growth.
From Econoday:
| Consensus Range | Consensus | Actual | |
| Markit Services | 50.5 to 50.7 | 50.7 | 51.5 |
| ISM Services | 54.2 to 57.0 | 55.9 | 55.1 |
From Markit:
Subdued growth of business activity continues in June
- Activity growth edges up from May’s 39-month low
- New business growth quickens, but remains historically subdued
- Business confidence dips to three-year low
- June survey data indicated a marginal increase in business activity across the U.S service sector. Although the upturn was among the weakest over the last three years, the rate of growth quickened from May’s recent low. The faster expansion was supported by an acceleration in the rate of increase in new business. The slight pick up in client demand also led to a renewed rise in backlogs of work, with employment increasing moderately to accommodate greater pressure on capacity. Uncertainty regarding future new order growth dampened business confidence further as expectations hit a three-year low. Inflationary pressures meanwhile quickened slightly, but remained muted overall.
- The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 51.5 in June, up slightly from 50.9 in May. The latest index figure signalled a stronger expansion than the earlier ‘flash’ reading (50.7). That said, June data indicated only a marginal increase in output that was the second-slowest since August 2016 (behind May). Where a rise was reported, service providers linked this to a faster upturn in new business.
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From the ISM Services report:
Economic activity in the non-manufacturing sector grew in June for the 113th 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 55.1 percent, which is 1.8 percentage points lower than the May reading of 56.9 percent. This represents continued growth in the non-manufacturing sector, at a slower rate. This is the index’s lowest reading since July 2017, when it registered 55.1 percent. The Non-Manufacturing Business Activity Index decreased to 58.2 percent, 3 percentage points lower than the May reading of 61.2 percent, reflecting growth for the 119th consecutive month. The New Orders Index registered 55.8 percent; 2.8 percentage points lower than the reading of 58.6 percent in May. The Employment Index decreased 3.1 percentage points in June to 55 percent from the May reading of 58.1 percent. The Prices Index increased 3.5 percentage points from the May reading of 55.4 percent to 58.9 percent, indicating that prices increased in June for the 25th consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. Although the non-manufacturing sector’s growth rate dipped in June, the sector continues to reflect strength. The comments from the respondents reflect mixed sentiment about business conditions and the overall economy. A degree of uncertainty exists due to trade and tariffs.”
INDUSTRY PERFORMANCE
The 16 non-manufacturing industries reporting growth in June — listed in order — are: Real Estate, Rental & Leasing; Other Services; Finance & Insurance; Accommodation & Food Services; Health Care & Social Assistance; Mining; Construction; Educational Services; Professional, Scientific & Technical Services; Utilities; Public Administration; Information; Management of Companies & Support Services; Transportation & Warehousing; Retail Trade; and Wholesale Trade. The only industry reporting a decrease is Arts, Entertainment & Recreation.
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 3.0 points and now is at 61.2
- The New Orders Index declined 2.8 and is currently at 58.6
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 a 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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