Macro Monday 22 - ISM Services Vs PMI

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ECONOMICS:USNMPMI   United States Non-Manufacturing PMI
US ISM Non-Manufacturing Index (ISM Services)

Next Release: 5th December 2023 (released on third business day of each month)

The U.S. Institute for Supply Management (ISM) Non-Manufacturing Index (“ISM Services”) encompasses a wide range of services across various industries.

The index is designed to measure the economic activity and health of the services sector in the United States some of which are professional services (accounting, legal, etc.), healthcare (hospitals, clinics & other practitioners), accommodation, leisure and food services.

Similar to the ISM Manufacturing Index (aka as the Purchasers Managers Index) which surveys producers and manufacturers which we covered in Macro Monday 13, the ISM Services index is also based on surveys conducted on participants in the relevant services sectors noted above. Also similar to the ISM Manufacturing index, the ISM Services is reported as a diffusion index, where values above 50 indicate expansion or growth in the sector, while values below 50 suggest contraction.

This makes both the ISM Manufacturing Index and ISM Services Index easy to compile onto a chart for comparison purposes.

The ISM Services Vs ISM Manufacturing Chart

The chart demonstrates the following:

▫️ At present ISM Services has been more resilient and is in expansionary territory at 51.8 (above 50) whilst ISM Manufacturing is in contractionary territory below the 50 level at 46.7.

▫️ Both the ISM Services Index and the ISM Manufacturing Index have been in a downward trajectory since 2021.
- You can clearly see that since March 2021 the
Manufacturing Index has declined from 64.5 down
to 46.7 today (Red Line).
- Thereafter from November 2021 the ISM Services
Index declined from 67.5 down to 51.8 today (Blue

▫️ As you can see on the chart a steep manufacturing decline can often provide advance an warning of a subsequent services decline (grey areas on chart).

It’s important to acknowledge that the Manufacturing Index can lead the ISM Services Index. It is important because we discovered in Macro Monday 13 that the Manufacturing Index (AKA Purchaser Managers Index) reading below 42 can provide an advance/confirmation warning of recession, thus more weight could be assigned to the Manufacturing Index than Services Index in predicting a recession (as it appears to lead services direction). For this reason we will review the ISM Manufacturing Index (PMI) indications below.

The ISM Manufacturing Chart
The main findings of the ISM Manufacturing Index (AKA Purchaser Managers Index)

From a Recession Perspective
▫️ 11 of the 12 recessions on the chart coincided with a PMI of less than 42.
▫️ 1 recession occurred that did not breach below the 42 level (No. 9 on the chart)

From a PMI Perspective
▫️ 12 of the 13 times that the PMI moved below the 42 level, this coincided with a recession.
▫️ 1 time we have had a sub 42 PMI reading without a recession (Between 11 & 12 on the chart).

At present we are at a level of 46.7 so we do not currently have a trigger event for a recession but we know exactly what to look for.

Based on both historical perspectives, there is an c.92% probability of a recession should a sub 42 PMI level be established, or vice versa, in the event of a recession confirmation there is a c. 92% probability it would coincide with the sub 42 PMI level.

Timing ISM Manufacturing Bottoms

o 10 out of 12 PMI Bottoms occurred in Q1 and the remaining two bottoms were in Q2. 83% of the time the PMI bottoms occur in Q1 which is good to know and watch for with Q1 2024 approaching swiftly.

o The average PMI Bottom to bottom timeframe over the past 6 cycles is 58 months (Min 37 – Max 86). We are presently at month 44 and month 58 is Jan 2025 (Q1)

The ISM New Orders Index (30% of the PMI)
Similar to the ISM New Orders Index Chart (covered in Macro Monday 6) which makes up 30% of the Purchaser Managers Index or Manufacturers Index (PMI), we have not reached below the 42 level on this chart either which has provided a 100% confirmation of recession when we have had a definitive move below the 42 level historically. At present we are at 45.5 on this chart and we seem to have a downward trajectory at present unless something changes upon the next data release.

In summary, we now know now that the Manufacturers Index (PMI) often leads the Services Index, and we need to pay close attention to the 42 level on both the New orders Index (Makes up 30% of PMI) and the Manufacturing Index (PMI) as a breach below this level on these charts increases the probability of a recession upwards of 92%. We are also now aware that there is a high incidence of the PMI bottoming in Q1 (83% of the time) and occasionally in Q2. These are quarters we can be on high alert for a sub 42 level.

The ISM Services PMI is released on the third business day of each month at 10:00 a.m. (EST) or 15:00 GMT. The next release will be on the Tuesday the 5th December 2023. Most of the ISM data releases commence within the first 5 working days of the month.

As always folks, I will watch the numbers and keep you informed. All of the above charts are updated on TradingView as data is released.


Mentioned in todays Macro Monday is the resilience of US ISM Services PMI which increased from 52 to 52.7 last week. The expectations were lower at 52.

You can clearly see how ISM Services has been in a downward trend since Nov 2021 however remains above the 0 level meaning it remains expansionary. territory. It has also made a three higher lows since Dec 2022, could this be a change of trend? Time will tell.

In contrast the ISM Manufacturing PMI has been in contractionary territory since Oct 2022, and historically this can sometimes lead ISM Services into an contractionary territory.

Lots to consider as 2024 approaches



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