November 2017 ISM and Markit Services Remain In Expansion

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

Analyst Opinion of the ISM and Markit Services Survey

Both services surveys are in expansion. I would weight the Markit numbers higher which would indicate a slightly slowing service sector.

From Bloomberg / Econoday:

From Markit:

Service sector business activity growth remains strong in October

• Service sector output expansion softens to fivemonth low
• Upturn in new business accelerates
• Business confidence slips to joint-weakest since February
• November survey data signalled a slower rate of expansion in business activity across the US service sector. Although output growth eased slightly to a five-month low, the upturn in new business accelerated and was solid overall. Employment growth meanwhile reached a threemonth peak, which helped alleviate capacity pressures. In line with this, backlog accumulation softened to a five-month low. Inflationary pressures intensified with both input prices and output charges rising at quicker paces. The latest survey also indicated a fall in business confidence to the joint-lowest since February.
• The seasonally adjusted IHS Markit U.S. Services Business Activity Index registered 54.5 in November, down from 55.3 in October. Although the latest index reading indicated a slightly weaker output expansion, the overall rate of growth was strong by recent standards nonetheless. Anecdotal evidence suggested that increases in activity were due to greater new order volumes and robust client demand.

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From the ISM Services report:

Economic activity in the non-manufacturing sector grew in November for the 95th 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 57.4 percent, which is 2.7 percentage points lower than the October reading of 60.1 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 61.4 percent, 0.8 percentage point lower than the October reading of 62.2 percent, reflecting growth for the 100th consecutive month, at a slightly slower rate in November. The New Orders Index registered 58.7 percent, 4.1 percentage points lower than the reading of 62.8 percent in October. The Employment Index decreased 2.2 percentage points in November to 55.3 percent from the October reading of 57.5 percent. The Prices Index decreased by 2 percentage points from the October reading of 62.7 percent to 60.7 percent, indicating prices increased in November for the sixth consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. The rate of growth has lessened in the non-manufacturing sector after two very strong months of growth. Comments from the survey respondents indicate that the economy and sector will continue to grow for the remainder of the year."

INDUSTRY PERFORMANCE

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

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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 0.8 points and now is at 61.4.

ISM Services - Business Activity Sub-Index

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The New Orders Index declined 4.1 and is currently at 58.7.

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.