July 2019 ISM And Markit Services Show Weak Growth

The ISM non-manufacturing (aka ISM Services) index and the Markit PMI Services Index continued their growth cycle but one index marginally increased whilst the other marginally declined. Both are showing soft growth.

Analyst Opinion of the ISM and Markit Services Survey

Both services surveys are in expansion but showing soft growth. I would say both indices are little changed from last month.

From Econoday:

From Markit:

New business growth accelerates to four-month high in July

• Faster rates of expansion in output and new orders
• Business expectations slip to new series low
• Selling prices rise only fractionally
• U.S service providers signalled a solid start to the second half of 2019. July data indicated a faster rise in business activity, supported by more robust domestic and foreign client demand. New orders increased at the quickest rate since March and new business from abroad grew at the strongest pace for five months. Nonetheless, positive sentiment towards output slipped to a new series record low. At the same time, the rate of job creation was only moderate overall. Meanwhile, inflationary pressures were historically subdued in July, with rates of both input price and output charge inflation easing.
• The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 53.0 in July, up from 51.5 in June and accelerating further from May's recent low. The upturn in business activity was solid overall and the fastest for three months. Service providers attributed the rise to greater new business and improved client demand. That said, the pace of expansion was slower than that seen at the start of the year and below the series average (55.1). Supporting the acceleration in output growth was a stronger increase in new business. Service providers registered the quickest expansion in new orders since March, with the rate of growth accelerating for the second successive month. Foreign client demand also improved, with new business from abroad rising at the sharpest pace since February. The rise in new export orders was also faster than the series average.

 

From the ISM Services report:

Economic activity in the non-manufacturing sector grew in July for the 114th 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 53.7 percent, which is 1.4 percentage points lower than the June reading of 55.1 percent. This represents continued growth in the non-manufacturing sector, at a slower rate. This is the index's lowest reading since August 2016, when it registered 51.8 percent. The Non-Manufacturing Business Activity Index decreased to 53.1 percent, 5.1 percentage points lower than the June reading of 58.2 percent, reflecting growth for the 120th consecutive month. The New Orders Index registered 54.1 percent; 1.7 percentage points lower than the reading of 55.8 percent in June. The Employment Index increased 1.2 percentage points in July to 56.2 percent from the June reading of 55 percent. The Prices Index decreased 2.4 percentage points from the June reading of 58.9 percent to 56.5 percent, indicating that prices increased in July for the 26th consecutive month. According to the NMI®, 13 non-manufacturing industries reported growth. The non-manufacturing sector's rate of growth continued to cool off. Respondents indicated ongoing concerns related to tariffs and employment resources. Comments remained mixed about business conditions and the overall economy."

The 13 non-manufacturing industries reporting growth in July — listed in order — are: Accommodation & Food Services; Utilities; Professional, Scientific & Technical Services; Real Estate, Rental & Leasing; Transportation & Warehousing; Construction; Information; Other Services; Finance & Insurance; Public Administration; Management of Companies & Support Services; Mining; and Health Care & Social Assistance. The five industries reporting a decrease are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Wholesale Trade; and Educational Services.

ISM Services Index

source: tradingeconomics.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 declined 3.0 points and now is at 61.2
• The New Orders Index declined 2.8 and is currently at 58.6

The complete ISM manufacturing and non-manufacturing survey table are 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.

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.