Written by Steven Hansen
The ISM significantly improved and remained in expansion whilst the Markit PMI improved and advanced further into expansion.
Analyst Opinion of the ISM and Markit Services Survey
With the economy reopening, it comes as no surprise that both of these indices improved.
From Econoday:
| Consensus Range | Consensus | Actual | |
| Markit Services | 59.1 to 59.8 | 59.1 | 60.4 |
| ISM Services | 55.9 to 60.5 | 58.6 | 63.7 |
From Markit:
Fastest rise in business activity since July 2014 as new order growth reaches six-year high
- Upturns in output and new orders accelerate to strong rates
- Price gauges hit highest on record amid supply chain disruptions
- Business optimism improves since February
- March PMITM data indicated a substantial increase in business activity across the U.S. service sector, and one that was the steepest for almost seven years. Contributing to the marked upturn in output was the fastest expansion in new business for six years, reflecting strengthening client demand. Firms also registered a renewed rise in new export orders. Meanwhile, rates of input cost and output charge inflation reached fresh record peaks, as firms sought to pass on steep rises in input prices to clients. Meanwhile, sentiment among service providers about business in the year ahead improved, helping drive employment growth to a three-month high .
- The seasonally adjusted final IHS Markit US Services PMI Business Activity Index registered 60.4 in March, up from 59.8 in February and above the earlier released ‘flash’ estimate of 60.0. The rate of output growth signalled was the fastest since July 2014. Service providers often stated that the stronger expansion in business activity was due to greater client demand and the easing of virus containment restrictions in some states. At the same time, new business increased further in March, with the rate of growth accelerating for the third successive month. The pace of the upturn in client demand was the quickest since March 2015. Firms attributed the expansion to greater spending by existing customers as well as the acquisition of new clients, often through more sales and marketing activities. Others suggested that higher confidence stemming from the vaccine roll-out had driven up customer spending.
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From the ISM Services report:
Economic activity in the services sector grew in March for the 10th 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 an all-time high of 63.7 percent, 8.4 percentage points higher than the February reading of 55.3 percent. The previous high was in October 2018, when the Services PMI® registered 60.9 percent. The March reading indicates the 10th straight month of growth for the services sector, which has expanded for all but two of the last 134 months.”
Nieves continues, “For further historical context, the Services PMI® debuted as the Non-Manufacturing NMI® in 2008, although subindex data was collected for years in advance. In August 1997, the four subindexes — Business Activity, New Orders, Employment and Supplier Deliveries — that make up the Services PMI® would have calculated a composite-index reading of 62 percent.
“The Supplier Deliveries Index registered 61 percent, up 0.2 percentage point from February’s reading of 60.8 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 74 percent is 2.2 percentage points higher than the February reading of 71.8 percent, indicating that prices increased in March, and at a faster rate. According to the Services PMI®, all 18 services industries reported growth. The composite index indicated growth for the 10th consecutive month after a two-month contraction in April and May. There was a substantial increase in the rate of growth in the services sector in March. Respondents’ comments indicate that the lifting of coronavirus (COVID-19) pandemic-related restrictions has released pent-up demand for many of their respective companies’ services. Production-capacity constraints, material shortages, weather and challenges in logistics and human resources continue to cause supply chain disruption,” says Nieves.
INDUSTRY PERFORMANCE
All of the 18 services industries reporting growth in March — listed in order — are: Arts, Entertainment & Recreation; Wholesale Trade; Mining; Management of Companies & Support Services; Construction; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Real Estate, Rental & Leasing; Transportation & Warehousing; Public Administration; Finance & Insurance; Utilities; Health Care & Social Assistance; Professional, Scientific & Technical Services; Information; Retail Trade; Educational Services; 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.
This index and its associated sub-indices are fairly volatile.
- The Business Activity sub-index increased 13.9 points and now is at 69.4
- The New Orders Index improved 15.3 points and is currently at 67.2
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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