ISM and PMI Services Report Remain in Growth Territory

A key report has come out for November and will be one of the last economic reports ahead of Friday’s unemployment report. The Institute for Supply Management showed a positive reading of growth for the ISM Non-Manufacturing Index in November — coming in at 55.9.

While the figure is well above the 50.0 line that separates growth and contraction, the investing public may focus on the notion that Bloomberg listed the Econoday consensus as 58.2 and that the prior report for October was up at 59.1.

This is far better than the ISM manufacturing report that came out earlier this week. The headline manufacturing index reading was 48.6, below the 50.0 break-even. Bloomberg had a consensus estimate of 50.5, in a range of 49.7 to 51.0 from the pool of Econoday estimates. In short, that manufacturing report was not only a report measuring contraction, it was more than a full point under the lowest economist’s prediction for November.

So, here is the good news now: manufacturing may be weak, but the United States is a non-manufacturing economy.

The take for the non-manufacturing should be that there is still growth but that the growth is cooling. It was the slowest rate of growth since May. New orders were at 57.5, but new export orders were 49.5 and at the first contraction since April. The backlog orders index was 51.5 and employment was 55.5.

Again, a reading above the 50.0 mark means growth and one under means contraction. There were 12 industries showing growth and six showing contraction.

A rival report of PMI Services in November was released Thursday morning as well. This was 56.1, versus 54.8 in October. Bloomberg said of the PMI Services report:

The services PMI finishes November at a very solid 56.1, down 4 tenths from the mid-month flash but up a strong 1.3 points from October. November is the best full-month showing for this index since August and reflects strength across both business and consumer customers. The report describes new orders as “robust” and “accelerating” and the best since July, which is good news for the U.S. economy where manufacturing, which is directly exposed to the global economy, has been weak. Hiring in the services sample is described as “sustained” though still weaker than the year-to-date average. The outlook is upbeat but a little less so than prior months with some respondents citing uncertainty tied to the interest rate outlook. In a plus, the report also cites strength tied to reduced pressures on household budgets, a reference to low gasoline prices. This report is a plus for the U.S. outlook.

The ISM manufacturing report was very negative, but the services report still gives the Federal Reserve enough cover to maintain its stance that the first interest rate hike in years is justifiable.

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