ISM Non-Manufacturing: PMI Down, Signals Continued Slow Growth
June 3, 2016
by Jill Mislinski
Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 52.9 percent, down 2.8 percent from last month's seasonally adjusted 55.7 percent. Today's number came in below the Investing.com forecast of 55.5 percent.
Here is the report summary:
"The NMI® registered 52.9 percent in May, 2.8 percentage points lower than the April reading of 55.7 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 55.1 percent, 3.7 percentage points lower than the April reading of 58.8 percent, reflecting growth for the 82nd consecutive month, at a slower rate in May. The New Orders Index registered 54.2 percent, 5.7 percentage points lower than the reading of 59.9 percent in April. The Employment Index decreased 3.3 percentage points to 49.7 percent from the April reading of 53 percent and indicates contraction after two consecutive months of growth. The Prices Index increased 2.2 percentage points from the April reading of 53.4 percent to 55.6 percent, indicating prices increased in May for the second consecutive month. According to the NMI®, 14 non-manufacturing industries reported growth in May. Respondents’ comments are mixed and vary by industry and company. Overall, the report reflects a cooling-off and slowing in momentum from the previous months of growth for the non-manufacturing sector."
Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.
The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 55.1 percent is down 3.7 from a seasonally adjusted 58.8 the previous month.
For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualizing the short-term trends.
Theoretically, this indicator should become more useful as the timeframe of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains our intention to keep this series on the radar.
Here is a table showing trend in the underlying components.
Note: We use the FRED USRECP series (Peak through the Period preceding the Trough) to highlight the recessions in the charts above. For example, the NBER dates the last cycle peak as December 2007, the trough as June 2009 and the duration as 18 months. The USRECP series thus flags December 2007 as the start of the recession and May 2009 as the last month of the recession, giving us the 18-month duration. The dot for the last recession in the charts above are thus for November 2007. The "Peak through the Period preceding the Trough" series is the one FRED uses in its monthly charts, as illustrated here.