Written by Steven Hansen
The ISM non-manufacturing (aka ISM Services) index and the Markit PMI Services Index continued their growth cycle but show little growth.
Analyst Opinion of the ISM and Markit Services Survey
Both surveys are showing very little growth – however, the ISM survey improved but the Markit survey was little changed.
From Econoday:
| Consensus Range | Consensus | Actual | |
| Markit Services | 50.9 to 51.2 | 51.0 | 50.6 |
| ISM Services | 52.7 to 54.0 | 53.5 | 54.7 |
From Markit:
Slowest rise in business activity since February 2016
- Marginal upturn in output
- Fastest fall in employment for almost a decade
- Renewed rise in input prices
- U.S. service providers reported a further slowdown in business activity growth in October, as new business stagnated and export demand dropped further. The marginal expansion was the weakest since early-2016 and resulted in the sharpest decrease in workforce numbers since December 2009. Nonetheless, firms noted a slightly more upbeat outlook for the year ahead. Although input prices rose for the first time since July, the increase was only marginal and output charges were subsequently broadly unchanged.
- The seasonally adjusted final IHS Markit US Services Business Activity Index registered 50.6 in October, dropping slightly from 50.9 in September and downwardly revised from the flash figure of 51.0. The rate of increase in business activity was only marginal overall and the slowest since the current expansion began in February 2016. Growth was weighed on by lacklustre client demand and greater hesitancy among customers to place orders. Concurrently, the New Business Index posted below the 50.0 neutral mark for the first time since data collection began a decade ago, signalling a marginal drop new order levels. Companies stated that the postponement of orders placed by clients and weaker demand underpinned the broad stagnation.
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From the ISM Services report:
Economic activity in the non-manufacturing sector grew in October for the 117th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.
INDUSTRY PERFORMANCE
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 54.7 percent, which is 2.1 percentage points above the September reading of 52.6 percent. This represents continued growth in the non-manufacturing sector, at a faster rate. The Non-Manufacturing Business Activity Index increased to 57 percent, 1.8 percentage points higher than the September reading of 55.2 percent, reflecting growth for the 123rd consecutive month. The New Orders Index registered 55.6 percent; 1.9 percentage points higher than the reading of 53.7 percent in September. The Employment Index increased 3.3 percentage points in October to 53.7 percent from the September reading of 50.4 percent. The Prices Index decreased 3.4 percentage points from the September reading of 60 percent to 56.6 percent, indicating that prices increased in October for the 29th consecutive month. According to the NMI®, 13 non-manufacturing industries reported growth. The non-manufacturing sector had an uptick in growth after reflecting a pullback in September. The respondents continue to be concerned about tariffs, labor resources and the geopolitical climate.”
The 13 non-manufacturing industries reporting growth in October — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Utilities; Professional, Scientific & Technical Services; Transportation & Warehousing; Real Estate, Rental & Leasing; Management of Companies & Support Services; Health Care & Social Assistance; Accommodation & Food Services; Arts, Entertainment & Recreation; Construction; Finance & Insurance; Public Administration; and Information. The five industries reporting a decrease are: Educational Services; Other Services; Retail Trade; Wholesale Trade; and Mining.
ISM Services Index
source: tradingeconomics.com
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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 1.8points and now is at 57.0
- The New Orders Index improved 1.9 points and is currently at 55.6
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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