Another ISM/PMI Divergence: Non-Manufacturing

On April 3, I noted a huge discrepancy between the ISM manufacturing report and Markit’s PMI manufacturing report.

by Mish

Today, both companies gave their assessment of non-manufacturing also known as services.

The discrepancy remains. At least one of the companies is way off base in regards to GDP estimates.

The ISM Non-Manufacturing Report on Business notes business activity increased for the 92nd consecutive month.

Fourteen industries reported increased business activity and two industries reported decreased activity for the month of March. Employment expanded for 37 months.

The Business Activity Index is a robust 58.9 down from 63.6. New Export orders rose.

Following the manufacturing report, the ISM assessed first quarter GDP at a whopping 4.3%. The ISM did not update that forecast today.

Markit U.S. Services PMI

In contrast to ISM, the Markit U.S. Services PMI reports the slowest growth of US service sector for six months.

Latest data also showed input costs rising at a solid rate, although a desire to strengthen profitability meant higher costs were passed onto clients wherever possible. The seasonally adjusted Markit U.S Services Business Activity Index remained above the 50.0 no-change mark in March to extend the current period of growth to 13 months.

However, the index continued to fall from January’s recent peak, reaching a six-month low of 52.8 (February: 53.8).

Operating costs continued to increase during March, with inflation underpinned by rises in labor costs and higher prices for basic materials and food products. The overall increase in input costs was solid and slightly higher than the pace seen in February.

Markit Composite vs GDP

Chris Williamson, Markit Chief Business Economist, Comments

  • “The March PMI numbers add to the picture of a relatively modest opening quarter to 2017 for the US economy. The surveys of manufacturing and services are running at levels consistent with GDP expanding by 1.7% in the first quarter.”
  • “Growth of business activity appears to have peaked in January, sliding to a six-month low in March.”
  • “The loss of momentum is linked to weaker inflows of new work, with the surveys providing some evidence that demand is being dented in part by higher prices.”
  • “However, business confidence, although up on February, has failed to regain the levels seen at the start of the year, suggesting a less ebullient mood has developed among companies than seen in the immediate aftermath of the presidential election. ”
  • “This lower degree of business optimism has translated into weaker hiring, with the March surveys indicating the smallest net gain in private sector employment since last October.”

Markit pegs GDP at 1.7% and ISM at 4.3 percent noted on April 5 in, Markit PMI vs. ISM Fantasyland GDP Projection: Stagflation Lite?

Both ISM and Markit are diffusion indices of similar companies. The discrepancies, especially the GDP estimates, should not be this wide.

I will post my own assessment of first quarter GDP shortly.

Mike “Mish” Shedlock

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