June 2018 ISM And Markit Services Indices Remain Strongly In Expansion

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

Services business activity growth accelerates to fastest since April 2015

• Output expansion the second-strongest since April 2015
• Steep, but slower upturn in new orders
• Rate of input price inflation joint-quickest since September 2013
• Robust June survey data indicated that the U.S. service sector enjoyed its strongest quarter for three years. The latest rise in output was the second-fastest since April 2015, behind May's recent high. The rate of new order growth remained sufficiently strong to encourage the second-highest degree of job creation since September 2015. The rate of input price inflation meanwhile matched that seen in May and was the joint-fastest since September 2013. Output charges also increased strongly in response to robust demand.
• The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 56.5 in June. Although down slightly from 56.8 in May, the rise in output was the second-fastest since April 2015. Panellists linked the upturn to greater client demand and the acquisition of new customers. At 56.0, the average index reading in the second quarter marked the strongest quarterly expansion in three years.​

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From the ISM Services report:

Economic activity in the non-manufacturing sector grew in June for the 101st 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 59.1 percent, which is 0.5 percentage point higher than the May reading of 58.6 percent. This represents continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 63.9 percent, 2.6 percentage points higher than the May reading of 61.3 percent, reflecting growth for the 107th consecutive month, at a faster rate in June. The New Orders Index registered 63.2 percent, 2.7 percentage points higher than the reading of 60.5 percent in May. The Employment Index decreased 0.5 percentage point in June to 53.6 percent from the May reading of 54.1 percent. The Prices Index decreased by 3.6 percentage points from the May reading of 64.3 percent to 60.7 percent, indicating that prices increased in June for the 28th consecutive month. According to the NMI®, 17 non-manufacturing industries reported growth. Respondents continue to be optimistic about business conditions and the overall economy. There is a continuing concern relating to tariffs, capacity constraints and delivery."

INDUSTRY PERFORMANCE

The 17 non-manufacturing industries reported growth in June — listed in order — are: Mining; Construction; Wholesale Trade; Retail Trade; Public Administration; Educational Services; Real Estate, Rental & Leasing; Management of Companies & Support Services; Transportation & Warehousing; Health Care & Social Assistance; Utilities; Finance & Insurance; Arts, Entertainment & Recreation; Other Services; Professional, Scientific & Technical Services; Information; and Accommodation & Food Services. The only industry reporting a decrease is Agriculture, Forestry, Fishing & Hunting.

ISM Services Index

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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 0.5 points and now is at 61.9
• The New Orders Index improved 2.7 and is currently at 63.2

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 an 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.