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 declined but the Markit survey marginally improved. Both indices are at the lower end of the range seen in over 2 years.
From Econoday:
Consensus Range | Consensus | Actual | |
Markit Services | 50.8 to 51.6 | 51.6 | 51.6 |
ISM Services | 53.2 to 55.3 | 54.5 | 53.9 |
From Markit:
Business activity growth strengthens in November
- Faster, albeit only marginal, rise in output
- Renewed increase in new business
- Optimism remains historically subdued
- U.S. service sector firms signalled a quicker expansion in business activity in November. Although only marginal, the increase in output was supported by a renewed upturn in new orders. Foreign client demand remained lacklustre, however, with new business from abroad continuing to fall. Greater new order inflows and a subsequent rise in backlogs of work led to a return to growth in employment, albeit only fractional overall. That said, business confidence remained muted and close to historical lows.
- Meanwhile, inflationary pressures were relatively subdued, with selling prices increasing only fractionally. The seasonally adjusted final IHS Markit US Services Business Activity Index registered 51.6 in November, up from 50.6 in October and in line with the ‘flash’ figure, indicating a further upturn in output across the U.S. service sector. The expansion was only marginal and well below the long-run series trend. Nonetheless, the rate of growth accelerated to a four-month high which companies attributed to an uptick in client demand.
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From the ISM Services report:
Economic activity in the non-manufacturing sector grew in November for the 118th 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 53.9 percent, which is 0.8 percentage points lower than the October reading of 54.7 percent. This represents continued growth in the non-manufacturing sector, at a slightly slower rate. The Non-Manufacturing Business Activity Index decreased to 51.6 percent, 5.4 percentage points lower than the October reading of 57 percent, reflecting growth for the 124th consecutive month. The New Orders Index registered 57.1 percent; 1.5 percentage points higher than the reading of 55.6 percent in October. The Employment Index increased 1.8 percentage points in November to 55.5 percent from the October reading of 53.7 percent. The Prices Index increased 1.9 percentage points from the October reading of 56.6 percent to 58.5 percent, indicating that prices increased in November for the 30th consecutive month. According to the NMI®, 12 non-manufacturing industries reported growth. The non-manufacturing sector had a slight pullback in November. The respondents hope for a resolution on tariffs and continue to be hampered by constraints in labor resources.”
INDUSTRY PERFORMANCE
The 12 non-manufacturing industries reporting growth in November — listed in order — are: Real Estate, Rental & Leasing; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Retail Trade; Finance & Insurance; Transportation & Warehousing; Management of Companies & Support Services; Information; Utilities; Professional, Scientific & Technical Services; and Public Administration. The five industries reporting a decrease are: Agriculture, Forestry, Fishing & Hunting; Mining; Wholesale Trade; Construction; and Other Services.
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 declined 0.8 points and now is at 51.6
- The New Orders Index improved 1.5 points and is currently at 557.1
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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