May 2017 ISM and Markit Services Slightly Mixed Views of the Service Sector

The ISM non-manufacturing (aka ISM Services) index continues its growth cycle but declined. Markit PMI Services Index marginally improved showing modest expansion.

Analyst Opinion of the ISM and Markit Services Survey

One survey maginally up whilst the other marginally down. I would assume there is little change in the rate of expansion.

From Bloomberg / Econoday:

From Markit:

From the ISM Services report:

Economic activity in the non-manufacturing sector grew in May for the 89th 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 56.9 percent, which is 0.6 percentage point lower than the April reading of 57.5 percent. This represents continued growth in the non-manufacturing sector at a slightly slower rate. The Non-Manufacturing Business Activity Index decreased to 60.7 percent, 1.7 percentage points lower than the April reading of 62.4 percent, reflecting growth for the 94th consecutive month, at a slower rate in May. The New Orders Index registered 57.7 percent, 5.5 percentage points lower than the reading of 63.2 percent in April. The Employment Index increased 6.4 percentage points in May to 57.8 percent from the April reading of 51.4 percent. The Prices Index decreased 8.4 percentage points from the April reading of 57.6 percent to 49.2 percent, indicating prices decreased in May for the first time after 13 consecutive months of increasing. According to the NMI®, 17 non-manufacturing industries reported growth. Although the non-manufacturing sector's growth rate dipped in May, the sector continues to reflect strength, buoyed by the strong rate of growth in the Employment Index. The majority of respondents' comments continue to indicate optimism about business conditions and the overall economy."

INDUSTRY PERFORMANCE

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

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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 - both remaining in territories associated with expansion.

This index and its associated sub-indices are fairly volatile.

The Business Activity sub-index declined 1.7 points and now is at 60.7.

ISM Services - Business Activity Sub-Index

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The New Orders Index declined 5.5 and is currently at 57.7..

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

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z pmiservices.png

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.