This feels like another journey into the unreal world, but here we go.
Last month’s ISM Non-Manufacturing Index came in at 53.4 percent, down only slightly from January’s 53.5 percent. Meanwhile its Markit counterpart went into contraction at 49.8 percent in February (any value below 50 indicates contraction; above 50 means expansion).
Here’s the report from the Institute for Supply Management (bolds and most paragraph breaks added by me):
Economic activity in the non-manufacturing sector grew in March for the 74th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.
… The NMI® registered 54.5 percent in March, 1.1 percentage points higher than the February reading of 53.4 percent. This represents continued growth in the non-manufacturing sector at a slightly faster rate.
The Non-Manufacturing Business Activity Index increased to 59.8 percent, 2 percentage points higher than the February reading of 57.8 percent, reflecting growth for the 80th consecutive month, with a faster rate in March. The New Orders Index registered 56.7 percent, 1.2 percentage points higher than the reading of 55.5 percent in February.
The Employment Index increased 0.6 percentage point to 50.3 percent from the February reading of 49.7 percent and indicates growth after a month of contraction.
The Prices Index increased 3.6 percentage points from the February reading of 45.5 percent to 49.1 percent, indicating prices decreased in March for the fifth time in the last seven months.
According to the NMI®, 12 non-manufacturing industries reported growth in March. The majority of respondents’ comments indicate that business conditions are mostly positive and that the economy is stable and will continue on a course of slow, steady growth.
The 12 non-manufacturing industries reporting growth in March — listed in order — are: Educational Services; Information; Wholesale Trade; Finance & Insurance; Health Care & Social Assistance; Retail Trade; Mining; Management of Companies & Support Services; Accommodation & Food Services; Public Administration; Utilities; and Professional, Scientific & Technical Services. The two industries reporting contraction in March are: Arts, Entertainment & Recreation; and Transportation & Warehousing.
So we’re left wondering how the ISM’s survey respondents could have seen the final month in a quarter which is expected to show sub-1.0 percent annualized GDP growth — if we’re lucky — as going so well, especially in activity and new orders.
The contention I made in February concerning ISM’s Manufacturing Index seems now to also apply to Non-Manufacturing. That is, the survey has a positive selection bias. Firms that are doing well are filling out the survey, while those which are struggling are not.
UPDATE: Following my take introducing this post, Zero Hedge, with its quotes from the two reports, is essentially saying that the downbeat Markit report and ISM seem to be coming from separate planets.