Services confusion

This morning, the Institute for Supply Management (ISM) released its index of nonmanufacturing activity — showing an economic rebound. That is good. But the reporting on this index is bad — and misleading. The index gets reported as “services” — as in this story Service Sector’s Rebound Reflects Strength in Exports – WSJ.com. It is not a “services” index; it is a non-manufacturing index. There is a huge difference between the two. For example, the ISM non-manufacturing index includes the following industries: Agriculture, Forestry, Fishing & Hunting; Mining, and Construction. In addition, the survey includes both what I call tangible services (involving physical activities) and intangible services (not involving physical activities). It also includes both transactional services (such as Retail trade and Transportation & Warehousing) and informational services (such as Professional, Scientific & Technical Services, and Educational Services).
The ISM gets it right — this is a measure of the non-manufacturing portion of the economy. It is the reporters and the press who get it wrong. It simply illustrates how locked in to an outmoded mentality we are. If it is not manufacturing, it must be services, right? Wrong, wrong, wrong.

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One thought on “Services confusion”

  1. Getting the headlines right on “services” index.

    Kudos to the Wall Street Journal for getting the headlines right! Their Real Time Economics blog (“Vital Signs Chart: Slowing Nonmanufacturing Growth”) correctly states that the ISM Index is of non-manufacturing companies — not “services”. As I’ve not…

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