The ISM Non-Manufacturing Index for August rose to 56.9% (consensus 55.2%) from 56.7% in July. Businesses continue to wrestle with pricing pressures, supply chain issues, and labor supply constraints. The services sector accelerated slightly in August at the same time there was a deceleration in the pace of price increases. The acceleration in overall activity suggests Federal Reserve will continue to raise its policy rate and will not move quickly to pivot to a rate-cut cycle.
The dividing line between expansion and contraction is 50.0 The August composite index indicated growth for the 27th consecutive month after a two-month contraction in April and May 2020.
The 12-month average is 60.80 percent, which reflects consistently strong growth in the services sector.
“The Supplier Deliveries Index registered 61.9 percent, 0.6 percentage point higher than the 61.3 percent reported in May. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)
“The Prices Index dropped for the second consecutive month in June, decreasing 2 percentage points to 80.1 percent. Services businesses continue to struggle to replenish inventories, as the Inventories Index contracted for the first time since January 2022; the reading of 47.5 percent is down 3.5 percentage points from May’s figure of 51 percent. The Inventory Sentiment Index (46.2 percent, up 1.7 percentage points from May’s reading of 44.5 percent) contracted in June for the fourth consecutive month, indicating that inventories are in ‘too low’ territory and insufficient for current business requirements.”
– Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management
Highlights
- The New Orders Index rose to 61.8% from 59.9%.
- The Production Index increased to 60.9% from 59.9%.
- The Prices Index dropped to 71.5% from 72.3%.
- The Employment Index jumped to 50.2% from 49.1%.
- The Supplier Deliveries Index fell to 54.5% from 57.8%.
- The Backlog of Orders Index dropped to 53.9% from 58.3%.
- Inventories 46.2 vs. 45.0 last month
- Exports 61.9 vs. 59.5 last month
- Imports 48.2 vs. 48.0 last month
WHAT RESPONDENTS ARE SAYING
- “Starting to see some cost pressures relief; the overall supply environment is healthy.” [Accommodation & Food Services]
- “Some pullback on projects by clients, but activity is still strong for our company. This has alleviated some labor availability issues. Generally, there has been improvement in lead times and prices, but still longer and higher, respectively, than in 2021.” [Construction]
- “Supply chain issues continue to significantly extend lead times, with a shortage of materials to build scientific equipment and machinery contributing to the issue. Purchases need to be made three to six months in advance, in addition to the normal lead time. As for the higher education industry, it is breaking records for student applicants.” [Educational Services]
- “The supply chain and labor continue to be significant issues. Repair parts are nonexistent. Lead times for durable goods are extended, and the less-expensive, mass-produced products are breaking at increased rates — no QC (quality control). The FDA (U.S. Food and Drug Administration) must be reeling because we have been reporting sometimes daily. I’m concerned that a certain percentage of faulty products are probably discarded, which adds to the cost of doing business. Surgery and other hospital products cannot be culled, so it’s a complete loss — if they are red-bagged, that is another cost.” [Health Care & Social Assistance]
- “The supply chain challenges affect a portion of our buys as they include products and components made outside of the U.S. that are subject to shipping delays and other issues.” [Management of Companies & Support Services]
- “COVID-19 still affecting many businesses. Also, there is a labor shortage.” [Professional, Scientific & Technical Services]
- “Lingering concerns about inflation and price increases. Still having difficulties hiring staff to fill many positions.” [Public Administration]
- “No major changes. Concerns about the macroeconomic climate and consumer confidence.” [Retail Trade]
- “Very long lead times from major equipment — Original Equipment Manufacturers (OEMs). Commodity price escalation appears to be leveling.” [Utilities]
- “Business is pretty steady month to month, but we expect seasonal supply increase by September that will moderate prices.” [Wholesale Trade]
COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY
Commodities Up in Price
Chemicals (5); Chicken; Diesel Fuel* (21); Electrical Components (19); Fuel* (20); Hotel Rates (4); Labor (21); Labor — Construction; Labor — Contingent (2); Labor — Skilled; Labor — Temporary; Medical Gases; Maintenance, Repair and Operating (MRO) Supplies; Medical Supplies (2); Natural Gas; Paper; Personal Protective Equipment (PPE); Safety Products; Soybean Oil; Steel Products* (20); and Travel (4).
Commodities Down in Price
Aluminum Products (2); Beef; Dairy Products; Diesel Fuel*; Fuel* (2); Gasoline; Ocean Freight; and Steel Products*
Commodities in Short Supply
Blood Collection Tubes; Electrical Components (5); Electronic Components; Electronic Parts; Fiberglass Door Slabs; IV Products; Lab Supplies; Labor (13); Labor — Construction; Labor — Skilled; Medical Supplies; Microchips (4); Paper; Potato Products; Tires; Tubing; and Vehicles (2).
Note: The number of consecutive months the commodity is listed is indicated after each item. *Indicates both up and down in price.
SERVICES PMI® HISTORY
Month Services PMI®
- Aug 2022 56.9
- Jul 2022 56.7
- Jun 2022 55.3
- May 2022 55.9
- Apr 2022 57.1
- Mar 2022 58.3
- Feb 2022 56.5
- Jan 2022 59.9
- Dec 2021 62.3
- Nov 2021 68.4
- Oct 2021 66.7
- Sep 2021 62.6
- Aug 2021 62.2
- Jul 2021 64.1
- Jun 2021 60.7
Average for 12 months – 59.7
High – 68.4
Low – 55.3
Business Activity
The 11 industries reporting an increase in business activity for the month of August — listed in order — are: Real Estate, Rental & Leasing; Utilities; Information; Educational Services; Construction; Wholesale Trade; Transportation & Warehousing; Public Administration; Professional, Scientific & Technical Services; Health Care & Social Assistance; and Finance & Insurance. The three industries reporting a decrease in business activity for the month of August are: Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; and Arts, Entertainment & Recreation.
New Orders
Twelve industries reported growth of new orders in August, in the following order: Educational Services; Mining; Information; Utilities; Real Estate, Rental & Leasing; Public Administration; Wholesale Trade; Retail Trade; Health Care & Social Assistance; Management of Companies & Support Services; Finance & Insurance; and Professional, Scientific & Technical Services. The only industry reporting a decrease in new orders in August is Agriculture, Forestry, Fishing & Hunting.
Employment
The eight industries reporting an increase in employment in August — listed in order — are: Mining; Construction; Transportation & Warehousing; Accommodation & Food Services; Arts, Entertainment & Recreation; Other Services; Information; and Wholesale Trade. The seven industries reporting a decrease in employment in August — listed in order — are: Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Public Administration; Health Care & Social Assistance; Educational Services; and Utilities.
Supplier Deliveries
The 12 industries reporting slower deliveries in August — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Mining; Finance & Insurance; Real Estate, Rental & Leasing; Accommodation & Food Services; Construction; Utilities; Transportation & Warehousing; Educational Services; Management of Companies & Support Services; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The three industries reporting faster supplier deliveries for the month of August are: Retail Trade; Arts, Entertainment & Recreation; and Information.
Inventories
The eight industries reporting an increase in inventories in August — listed in order — are: Mining; Accommodation & Food Services; Utilities; Other Services; Transportation & Warehousing; Educational Services; Wholesale Trade; and Public Administration. The seven industries reporting a decrease in inventories in August — listed in order — are: Arts, Entertainment & Recreation; Retail Trade; Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Information; Management of Companies & Support Services; and Construction.
Prices
Seventeen services industries reported an increase in prices paid during the month of August, in the following order: Mining; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Other Services; Health Care & Social Assistance; Transportation & Warehousing; Public Administration; Utilities; Agriculture, Forestry, Fishing & Hunting; Educational Services; Finance & Insurance; Management of Companies & Support Services; Information; Construction; Retail Trade; Wholesale Trade; and Professional, Scientific & Technical Services. The only industry to report a decrease in prices in August is Accommodation & Food Services.
Backlog of Orders
The six industries reporting an increase in order backlogs in August — listed in order — are: Information; Mining; Real Estate, Rental & Leasing; Educational Services; Transportation & Warehousing; and Public Administration. The five industries reporting a decrease in order backlogs in August are: Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Retail Trade; Professional, Scientific & Technical Services; and Health Care & Social Assistance. Seven industries reported no change in order backlogs for the month of August.
New Export Orders
The six industries reporting an increase in new export orders in August — listed in order — are: Construction; Real Estate, Rental & Leasing; Utilities; Public Administration; Information; and Professional, Scientific & Technical Services. The three industries reporting a decrease in new export orders in August are: Educational Services; Transportation & Warehousing; and Wholesale Trade. Nine industries indicated no change in new export orders in August.
Imports
The six industries reporting an increase in imports for the month of August — listed in order — are: Public Administration; Information; Utilities; Professional, Scientific & Technical Services; Health Care & Social Assistance; and Wholesale Trade. The five industries that reported a decrease in imports in August are: Retail Trade; Agriculture, Forestry, Fishing & Hunting; Educational Services; Management of Companies & Support Services; and Construction. Seven industries reported no change in imports in August.
Inventory Sentiment
The seven industries reporting sentiment that their inventories were too high in August — listed in order — are: Arts, Entertainment & Recreation; Retail Trade; Mining; Wholesale Trade; Management of Companies & Support Services; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The seven industries reporting a feeling that their inventories were too low in August — listed in order — are: Real Estate, Rental & Leasing; Other Services; Accommodation & Food Services; Transportation & Warehousing; Educational Services; Information; and Utilities.
About Services PMI®
The Services PMI® is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.
About Institute for Supply Management®
Institute for Supply Management® (ISM®) serves supply management professionals in more than 90 countries. Its 50,000 members around the world manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM leads the profession through the ISM Report On Business®, its highly regarded certification programs and the ISM Advance™ Digital Platform. This report has been issued by the association since 1931, except for a four-year interruption during World War II.
The next Services ISM® Report On Business® featuring September 2022 data will be released at 10:00 a.m. ET on Wednesday, October 5, 2022.
Source: ISM World
From The TradersCommunity News Desk