August 2018 ISM and Markit Services Indices Mixed

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle and improved. Markit PMI Services Index again declined but remains in growth territory.

Analyst Opinion of the ISM and Markit Services Survey

Both services surveys are in expansion - and their intensity of growth and general trends are different this month.

From Nasdaq / Econoday:

From Markit:

Service sector activity growth eases, amid weaker new business upturn

• Output and new business expand at softer rates in August
• Employment growth eases to seven-month low
• Inflationary pressures ease
• The latest survey data signalled a weaker rise in business activity across the U.S. service sector. Output growth softened to a four-month low and dipped below the long-run series trend. The rate of new business growth softened to an eight-month low, despite remaining strong overall. Subsequently, firms showed evidence of spare capacity with backlogs falling further and employment growth slowing to a seven-month low. Meanwhile, increases in input prices and output charges eased, despite the rate of charge inflation remaining well above the series trend.
• The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 54.8 in August, down from 56.0 in July. Output growth was largely attributed by panellists to greater client demand and the opening of new facilities. However, the overall rate of growth eased to the softest since April.

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From the ISM Services report:

Economic activity in the non-manufacturing sector grew in August for the 103rd 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 58.5 percent, which is 2.8 percentage points higher than the July reading of 55.7 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased to 60.7 percent, 4.2 percentage points higher than the July reading of 56.5 percent, reflecting growth for the 109th consecutive month, at a faster rate in August. The New Orders Index registered 60.4 percent, 3.4 percentage points higher than the reading of 57 percent in July. The Employment Index increased 0.6 percentage point in August to 56.7 percent from the July reading of 56.1 percent. The Prices Index decreased by 0.6 percentage point from the July reading of 63.4 percent to 62.8 percent, indicating that prices increased in August for the 30th consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. There was a strong rebound for the non-manufacturing sector in August after growth 'cooled off' in July. Logistics, tariffs and employment resources continue to have an impact on many of the respective industries. Overall, the respondents remain positive about business conditions and the economy."

The 16 non-manufacturing industries reporting growth in August — listed in order — are: Construction; Transportation & Warehousing; Retail Trade; Educational Services; Other Services; Real Estate, Rental & Leasing; Public Administration; Management of Companies & Support Services; Wholesale Trade; Mining; Accommodation & Food Services; Health Care & Social Assistance; Finance & Insurance; Utilities; Professional, Scientific & Technical Services; and Information. The only industry reporting a decrease is Agriculture, Forestry, Fishing & Hunting.

ISM Services Index

Source: Investing.com

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 improved 4.2 points and now is at 60.7
• The New Orders Index improved 5.0 and is currently at 56.5

The complete ISM manufacturing and non-manufacturing survey table is 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 opinion survey and is not hard data.

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.

From Nasdaq / 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.