Written by Steven Hansen
The ISM improved and remained in expansion whilst the Markit PMI marginally declined but remained in expansion.
Analyst Opinion of the ISM and Markit Services Survey
The ISM services survey is and the Markit Services index show almost similar modest growth. I have a hard time believing services are in expansion with many restaurants, bars, and gyms running nowhere near full potential.
From Econoday:
| Consensus Range | Consensus | Actual | |
| Markit Services | 54.6 to 55.3 | 54.6 | 54.6 |
| ISM Services | 55.0 to 57.4 | 56.3 | 57.8 |
From Markit:
New business growth accelerates to fastest since March 2019
- Business activity rises further amid stronger expansion in new sales
- Employment growth remains historically elevated
- Selling prices increase at sharpest pace for two years
- September PMITM data signalled a solid upturn in U.S. service sector business activity, albeit one that was slightly slower than August’s recent high. The expansion was largely driven by a faster rise in new business. Quicker growth in new sales was supported by another strong increase in foreign client demand. As a result, employment growth remained historically marked, with firms mentioning strains on capacity. Business confidence, however, sank to a four-month low amid concerns regarding the coronavirus disease 2019 (COVID-19) pandemic. Input costs rose at a strong rate, but one that was outpaced by the increase in selling prices, as firms passed on higher costs to clients.
- The seasonally adjusted final IHS Markit US Services PMI Business Activity Index registered 54.6 in September, down slightly from 55.0 in August, but matching the earlier released ‘flash’ estimate. The solid rise in business activity was commonly linked to stronger demand conditions. The rate of growth was the second-fastest since March 2019 and solid overall despite softening from that seen in August. The rate of new business growth accelerated in September, as the respective seasonally adjusted index moved further away from April’s nadir. The strong expansion was the sharpest since March 2019, as total new sales were boosted by strengthening customer demand. The upturn was aided by a fourth successive monthly rise in new export orders. Moreover, the expansion in foreign client demand was the second-strongest since data collection for the series began six years ago
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From the ISM Services report:
Economic activity in the services sector grew in September for the fourth month in a row, say the nation’s purchasing and supply executives in the latest Services 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®) Services Business Survey Committee: “The Services PMI™ registered 57.8 percent, 0.9 percentage point higher than the August reading of 56.9 percent. This reading represents growth in the services sector for the fourth straight month and the 126th time in the last 128 months, except for April’s and May’s contraction.
“The Supplier Deliveries Index registered 54.9 percent, down 5.6 percentage points from August’s reading of 60.5 percent. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)
“The Prices Index figure of 59 percent is 5.2 percentage points lower than the August reading of 64.2 percent, indicating that prices increased in September at a slower rate. According to the Services PMI™, 16 services industries reported growth. The composite index indicated growth for the fourth consecutive month after contraction in April and May. Respondents’ comments remain mostly optimistic about business conditions and the economy, which correlates directly to those businesses that are operating. There continues to be capacity and logistics issues, as business volumes have increased,” says Nieves.
INDUSTRY PERFORMANCE
The 16 services industries reporting growth in September — listed in order — are: Arts, Entertainment & Recreation; Utilities; Management of Companies & Support Services; Transportation & Warehousing; Health Care & Social Assistance; Wholesale Trade; Real Estate, Rental & Leasing; Accommodation & Food Services; Construction; Public Administration; Educational Services; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Retail Trade; Information; and Other Services. The only industry reporting a decrease in September is Professional, Scientific & Technical 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.
This index and its associated sub-indices are fairly volatile.
- The Business Activity sub-index improved 0.6 points and now is at 63.0
- The New Orders Index improved 4.7 points and is currently at 61.5
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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