US PMIs Diverging – Is This A Cause For Concern?December 03, 2014
The US ISM non-manufacturing survey for November was released today and showed an increase of 2.2 points to a robust level of 59.3. Meanwhile, the Market services PMI was also released today for November and it reported that the services sector declined for the 5th straight month to 56.2.So is the non-manufacturing sector of the US picking up momentum or losing it? Unfortunately one should not compare these two series to answer that question because the month to month movements in these two series do not usually move in tandem. For example, the Markit services PMI has 61 months of history dating back to November 2009. In 31 of those months the 1-month directional change (i.e. up or down from the previous month) has contradicted the 1-month directional change in the ISM non-manufacturing survey.
The Markit manufacturing PMI and ISM manufacturing survey have a slightly better track record of moving in tandem month to month. The Markit manufacturing PMI series has been around for 90 months (June 2007). In 40 of those months, the two series moved in opposite direction. Or put another way, a little over 55% of the time the two series move in the same direction.
Overall, right now the ISM survey is saying growth in the US economy is more robust than what its Markit counterpart is saying. Going back to the question of whether or not this divergence is a cause for concern, we would generally say no as these two series surprisingly move in divergent directions about half of the time.