ISM Non-Manufacturing: Continued Growth In May

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Includes: AIRR, FIDU, FXR, IFLY, INDF, IYJ, JHMI, RGI, SIJ, UXI, VIS, XLI
by: Doug Short

The Institute of Supply Management (ISM) has now released the May Non-Manufacturing Purchasing Managers' Index (PMI), also known as the ISM Services PMI. The headline Composite Index is at 58.6 percent, up 1.8 from 56.8 last month. Today's number came in below the Investing.com forecast of 57.9 percent.

Here is the report summary:

"The NMI® registered 58.6 percent, which is 1.8 percentage points higher than the April reading of 56.8 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased to 61.3 percent, 2.2 percentage points higher than the April reading of 59.1 percent, reflecting growth for the 106th consecutive month, at a faster rate in May. The New Orders Index registered 60.5 percent, 0.5 percentage point higher than the reading of 60 percent in April. The Employment Index increased 0.5 percentage point in May to 54.1 percent from the April reading of 53.6 percent. The Prices Index increased by 2.5 percentage points from the April reading of 61.8 percent to 64.3 percent, indicating that prices increased in May for the 27th consecutive month. According to the NMI®, 14 non-manufacturing industries reported growth. The majority of respondents are optimistic about business conditions and the overall economy. There continue to be concerns about the uncertainty surrounding tariffs, trade agreements and the impact on cost of goods sold." [Source]

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 its behavior as a business cycle indicator.

The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 61.3 percent is up 2.2 from a seasonally adjusted 59.1 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 visualize the short-term trends.

Theoretically, this indicator should become more useful as the time frame 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 the trend in the underlying components.