Written by Steven Hansen
The ISM marginally declined but remained in expansion whilst the Markit PMI marginally improved and 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 | 54.3 to 55.5 | 55.0 | 56.9 |
ISM Services | 57.0 to 58.0 | 57.7 | 56.6 |
From Markit:
Business activity expands at fastest pace since April 2015
- Stronger demand conditions drive faster upturn in output
- Business expectations show record jump to highest since April 2018
- Cost pressures and hiring ease
- October PMITM data signalled a strong expansion in business activity across the U.S. service sector. The quicker rate of growth was largely linked to more robust demand conditions, despite a slower upturn in new export business. Firms continued to work through backlogs accumulated during lockdown, but pressure on capacity eased and employment consequently rose at the softest pace for three months. Optimism about business levels in one year’s time improved to the strongest since April 2018 principally amid hopes of an end to the coronavirus disease 2019 (COVID-19) crisis and additional stimulus during the pandemic. Meanwhile, inflationary pressures softened, with some noting greater efforts to boost sales through discounts and offers.
- The seasonally adjusted final IHS Markit US Services PMI Business Activity Index registered 56.9 in October, up from 54.6 in September and higher than the earlier released ‘flash’ estimate of 56.0. The improvement indicated that the rate of growth regained momentum at the start of the fourth quarter to the sharpest since April 2015. Greater output was often attributed to stronger demand conditions and a further uptick in new business. October data indicated a steep upturn in new business at service providers, with the rate of expansion accelerating for the second month running. Some companies noted that looser coronavirus restrictions had encouraged sales. The pace of growth was the most marked since February 2019. That said, new export orders rose at a softer pace in October, as reimposed lockdown measures in key external markets dampened demand.
z%20markit_services.png
From the ISM Services report:
Economic activity in the services sector grew in October for the fifth 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 56.6 percent, 1.2 percentage points lower than the September reading of 57.8 percent. This reading represents a fifth straight month of growth for the services sector, which has expanded for all but two of the last 129 months.
“The Supplier Deliveries Index registered 56.2 percent, up 1.3 percentage points from September’s reading of 54.9 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 63.9 percent is 4.9 percentage points higher than the September reading of 59 percent, indicating that prices increased in October at a faster rate. According to the Services PMI™, 16 services industries reported growth. The composite index indicated growth for the fifth consecutive month after a two month contraction in April and May. There has been a slight pull back in the rate of growth in the Services Sector in the month of October. Respondents’ comments are cautiously optimistic about business conditions and the economy. There is a degree of uncertainty due to the pandemic, capacity constraints, logistics and the elections,” says Nieves.
INDUSTRY PERFORMANCE
The 16 services industries reporting growth in October — listed in order — are: Transportation & Warehousing; Construction; Accommodation & Food Services; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Educational Services; Finance & Insurance; Management of Companies & Support Services; Wholesale Trade; Mining; Professional, Scientific & Technical Services; Utilities; Retail Trade; Real Estate, Rental & Leasing; Information; and Other Services. The two industries reporting a decrease in October are: Arts, Entertainment & Recreation; and Public Administration.
ISM Services Index
source: tradingeconomics.com
z pmiservices1.png
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 declined 1.8 points and now is at 61.2
- The New Orders Index declined 2.7 points and is currently at 58.8
The complete ISM manufacturing and non-manufacturing survey table are below.
z pmiservices.png
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.
include(“/home/aleta/public_html/files/ad_openx.htm”); ?>