June 2013 ISM Services Index Prime Components Tumble

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The June 2013 ISM non-manufacturing (aka services) index continues its 2+ year growth cycle, but declined from 53.7 to 52.2 (above 50 signals expansion) – again almost completely reversing last month’s gain. This was below the range of market forecasts of 53.5 to 54.0.

There are two sub-indexes in the NMI which have good correlations to the economy – the Business Activity Index and the New Orders Index – and both have good track records in spotting an incipient recession. Both are inside expansion territory – but both dived to values just within growth

This index and its associated sub-indices are fairly volatile – and one needs to step back from the data and view this index over longer periods than a single month.

The Business Activity sub-index fell 4.8 points and now is at 51.7.

ISM Services – Business Activity Sub-Index

The New Orders Index also remains only slightly in expansion territory.

ISM Services – New Orders Sub-Index

The complete ISM manufacturing and non-manufacturing survey table is below.

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.

From the ISM report:

Economic activity in the non-manufacturing sector grew in June for the 42nd consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

“The NMI™ registered 52.2 percent in June, 1.5 percentage points lower than the 53.7 percent registered in May. This indicates continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 51.7 percent, which is 4.8 percentage points lower than the 56.5 percent reported in May, reflecting growth for the 47th consecutive month. The New Orders Index decreased by 5.2 percentage points to 50.8 percent, and the Employment Index increased 4.6 percentage points to 54.7 percent, indicating growth in employment for the 11th consecutive month. The Prices Index increased 1.4 percentage points to 52.5 percent, indicating prices increased at a faster rate in June when compared to May. According to the NMI™, 14 non-manufacturing industries reported growth in June. Respondents’ comments are mixed about business conditions depending upon the industry and company. The majority indicate that growth has been slow and incremental; however, it is still better year over year.”

INDUSTRY PERFORMANCE – The 14 non-manufacturing industries reporting growth in June — listed in order — are: Management of Companies & Support Services; Arts, Entertainment & Recreation; Transportation & Warehousing; Wholesale Trade; Retail Trade; Information; Accommodation & Food Services; Utilities; Real Estate, Rental & Leasing; Public Administration; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Construction; and Professional, Scientific & Technical Services. The four industries reporting contraction in June are: Mining; Other Services; Educational Services; and Health Care & Social Assistance.

Caveats on the use of 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 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.

ISM Services Employment Sub-Index vs BLS Non-Farm Services Employment

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One reply on “June 2013 ISM Services Index Prime Components Tumble”

  1. Why the clueless so called economists are asked to predict the economy ? Whenever fools make the wrong predictions everybody is surprised . Even the child can make the predications and the results will be more or less the same as these fools’.  Its better to comment the results with the real economy or compared with the previous records .

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