by Calculated Risk on 11/04/2009 03:44:00 PM

Earlier this week there was some discussion about the increase in the ISM Manufacturing employment index.

ISM's Employment Index registered 53.1 percent in October, which is 6.9 percentage points higher than the 46.2 percent reported in September. This is the first month of growth in manufacturing employment following 14 consecutive months of decline. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

To check this statement, I posted a scatter graph of the relationship between the ISM Manufacturing employment index and the reported monthly change in manufacturing employment. (See: ISM and Manufacturing Employment) Sure enough, the increase in the employment index suggests an improvement in the BLS manufacturing employment numbers.

However the news today from the ISM non-manufacturing employment index was discouraging:

Employment activity in the non-manufacturing sector contracted in October for the 21st time in the last 22 months. ISM's Non-Manufacturing Employment Index for October registered 41.1 percent. This reflects a decrease of 3.2 percentage points when compared to the 44.3 percent registered in September.

And that calls out for another graph!

The following graph shows the ISM Non-Manufacturing Employment Index vs. the BLS reported monthly change in private service employment (as a percent of private service employment).

Note: There is a limited amount of data for the ISM non-manufacturing index (only back to July 1997).

Click on graph for larger image in new window.

Once again the ISM employment index is related to changes in BLS employment.

Although the relationship is noisy, the decline in the non-manufacturing employment index suggests that the October improvement in manufacturing employment will be more than offset by a decline in service employment.