November 2020 ISM and Markit Services Surveys Remain Modestly In Expansion

The ISM marginally declined but remained in expansion whilst the Markit PMI marginally improved and remained in expansion.

Analyst Opinion of the ISM and Markit Services Survey

The ISM services survey is and the Markit Services index show modest growth. I have a hard time believing services are in expansion with many restaurants, bars, and gyms running nowhere near full potential.

From Econoday:

From Markit:

Sharpest increase in activity since March 2015

• Substantial upturns in output and new business
• Employment rises at fastest pace in survey history
• Price indices at survey highs as cost pressures intensify
• November PMITM data signalled a marked increase in business activity across the U.S. service sector. The upturns in output and new business accelerated substantially to the fastest since March 2015 and April 2018, respectively. As a result, firms took on extra staff at the steepest rate on record, as pressure on capacity accumulated. Business expectations also strengthened to the most buoyant since January 2014. Meanwhile, input prices rose at the quickest pace since data collection began in October 2009, while firms also raised their output charges at the fastest rate for more than a decade in an effort to pass on steeper cost burdens to customers
• The seasonally adjusted final IHS Markit US Services PMI Business Activity Index registered 56.9 in October, up from 54.6 in September and higher than the earlier released 'flash' estimate of 56.0. The improvement indicated that the rate of growth regained momentum at the start of the fourth quarter to the sharpest since April 2015. Greater output was often attributed to stronger demand conditions and a further uptick in new business. October data indicated a steep upturn in new business at service providers, with the rate of expansion accelerating for the second month running. Some companies noted that looser coronavirus restrictions had encouraged sales. The pace of growth was the most marked since February 2019. That said, new export orders rose at a softer pace in October, as reimposed lockdown measures in key external markets dampened demand.

z%20markit_services.png

From the ISM Services report:

Economic activity in the services sector grew in November for the sixth month in a row, say the nation's purchasing and supply executives in the latest Services 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®) Services Business Survey Committee: "The Services PMI™ registered 55.9 percent, 0.7 percentage point lower than the October reading of 56.6 percent. This reading represents a sixth straight month of growth for the services sector, which has expanded for all but two of the last 130 months.

"The Supplier Deliveries Index registered 57 percent, up 0.8 percentage point from October's reading of 56.2 percent. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

"The Prices Index figure of 66.1 percent is 2.2 percentage points higher than the October reading of 63.9 percent, indicating that prices increased in November, and at a faster rate. According to the Services PMI™, 14 services industries reported growth. The composite index indicated growth for the sixth consecutive month after a two-month contraction in April and May. In November, there continued to be a slight pullback in the rate of growth in the services sector. Respondents' comments are mixed about business conditions and the economy. Restaurants continue to struggle with capacity constraints and logistics. Most companies are cautious as they navigate operations amid the pandemic and the aftermath of the U.S. presidential election," says Nieves.

INDUSTRY PERFORMANCE

The 14 services industries reporting growth in November — listed in order — are: Transportation & Warehousing; Management of Companies & Support Services; Health Care & Social Assistance; Utilities; Accommodation & Food Services; Construction; Retail Trade; Wholesale Trade; Professional, Scientific & Technical Services; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Mining; Public Administration; and Information. The four industries reporting contraction in November are: Arts, Entertainment & Recreation; Other Services; Real Estate, Rental & Leasing; 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.

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

• The Business Activity sub-index declined 0.7 points and now is at 58.0
• The New Orders Index declined 1.6 points and is currently at 57.2

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

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 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.