fbpx
ForexFraud Header

Non-Manufacturing ISM Report On Business

Published:
Updated:

This text aims to take a brief look at the ISM’s non-manufacturing PMI. We have analyzed the older manufacturing PMI in a much more detailed way in its relevant article, and those who would like to study this report in greater detail can peruse that manufacturing PMI article at their convenience. In this article we’ll only examine the issues specifically related to the non-manufacturing release. The non-manufacturing report is released on the third business day of each month at around 10 am EST, one day after the manufacturing ISM report.

The limited nature of the historical data available for the non-manufacturing PMI contrasts strongly with the long and extensive history of the ISM’s manufacturing report. While the manufacturing survey has been conducted on a continuous basis (with brief interruptions during the Second World War), the non-manufacturing survey has a history stretching back to 1998. As such, identifying inflexion points in the economy, or even understanding economic developments and evaluating data is a lot harder with the ISM non-manufacturing release

The ISM report breaks down U.S. services industries into the following groups: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Mining; Information; Health Care & Social Assistance; and Retail Trade, Management of Companies & Support Services; Public Administration; Finance & Insurance; Wholesale Trade; Professional, Scientific & Technical Services; Transportation & Warehousing; Construction; Educational Services; and Accommodation & Food Services, and Other Services. Answers from ISM’s questions by each sector are then weighed and reformulated into a diffusion index which is released to the public eventually.

Advantages and disadvantages of the Non-manufacturing PMI as an economic release

The most important advantage of the services PMI is the size of the survey. The services sector is the most significant part of the American economy, covering about 90 percent of economic activity, and since this survey reports on its conditions, it is a reliable gauge for the status of the overall U.S. economy. Through its PMI the ISM is able to capture trends in the services sector, and report on them in a timely and precise manner. The non-manufacturing survey is released on the third day of each month, it is one of the earliest releases in any month, and plays an important role in establishing investor sentiment.

The employment component of the non-manufacturing sector is often regarded as an advance warning system for the subsequent non-farm payrolls release. Since the non-manufacturing survey covers a much larger portion of the labor force, it is thought to correlate better with the eventual non-farm payrolls release which the ISM PMIs precede by a few days, along with other unemployment surveys.

The disadvantages of the services PMI are the same as those of the manufacturing survey. The arbitrary nature of the answers provided reduces the clarity and value of the PMIs figures. In addition, the brief period covered (data stretches back to 1998 only), diminishes our ability to compare present figures with past values.