ISM Non-Manufacturing Index Backs Off Record High in December

The ISM Non-Manufacturing Index for December pulled back to 62.0% (consensus 67.1%) from a record high 69.1% in November as the Omicron variant runs roughshod over the economy. The Prices Index increased to 82.5% from 82.3% in November. Earlier the ISM Manufacturing Prices Index fell to 68.2% from 82.4%. However, the services is 80% of the US economy, making it an inflation risk.

The dividing line between expansion and contraction is 50.0%. The December reading marks the 19th straight month of growth for the services sector.

“The Prices Index reached its third-highest reading ever at 82.5 percent, up 0.2 percentage point from the November figure of 82.3 percent. Services businesses continue to struggle replenishing inventories, as the Inventories Index (46.7 percent, down 1.5 percentage points from November’s reading of 48.2 percent) and the Inventory Sentiment Index (registering 38.3 percent, up 1.9 percentage points from November) stayed in contraction or ‘too low’ territory in December.”

– Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management

Highlights

  • The Prices Index increased to 82.5% from 82.3% in November, marking the third highest reading ever for this index.
  • The New Orders Index fell to 61.5% from an all-time high 69.7% in November.
  • The Production Index dropped to 67.6% from an all-time high 74.6% in November.
  • The Employment Index slipped to 54.9% from 56.5% in November.
  • The Supplier Deliveries Index decreased to 63.9% from 75.7% in November.
  • The Backlog of Orders Index ticked down to 62.3% from 65.9% in November. 

WHAT RESPONDENTS ARE SAYING

  • “Supply chain challenges to procure supplies for our restaurants remains our greatest obstacle at present, along with staffing needs. We are considering another price increase after just one in 2021, in August.” [Accommodation & Food Services]
  • “Supply chain issues continue, but our business is adapting.” [Agriculture, Forestry, Fishing & Hunting]
  • “The escalation in costs for materials, fuel, labor, lodging and the like continues to negatively impact margins in an unsustainable direction.” [Construction]
  • “Higher than normal employee attrition within our own company and at our suppliers, which is causing disruptions and delays.” [Finance & Insurance]
  • “There is widespread fatigue across the organization as COVID-19 hospitalizations have plateaued, but in the face of yet another variant (omicron), the winter forecast is not positive. Although hospitalizations have eased, demand for services is up, as is acuity of patients. Due to mainly logistical concerns, the supply chain remains turbulent and some supply shortages, including of Vacutainers, are hindering operations. Our organization is cautiously optimistic going into flu season.” [Health Care & Social Assistance]
  • “Most upstream production materials are being pressured by constrained supply chains as well as domestic transportation challenges. Vendors are trying not to pass on expenses, but their margins are such that they will need to raise prices. While we have done a good job holding prices down, we will not be able to hold the vendors at bay. All (cost of goods) will be impacted.” [Information]
  • “Activity continues to maintain a steady pace. Inventory levels and outages are persistent with our suppliers; however, starting to see some relief in the supply chain, but not below the critical point yet. Prices continue to be driven up, with shipping costs the largest driver due to inflated pressures on capacity and fuel costs.” [Other Services]
  • “Electronic chip (shortage) is severely affecting deliveries from our supply base, thus impacting our ability to deliver to customers.” [Professional, Scientific & Technical Services]
  • “Long lead times, transportation bottlenecks, delivery inconsistency and price increases continue to affect a range of products.” [Retail Trade]
  • “We continue to experience supply chain disruptions across the nation and around the globe, resulting in raw material and subcomponent shortages, longer manufacturer lead times, transportation resource constraints, labor pool issues and significant price increases. Supply management continues to recommend pulling in demand, placing orders earlier than historical lead times for long lead-time materials, and qualifying secondary sources of supply (if applicable).” [Utilities]
  • “Demand is good, but supply chain issues continue to get worse. Trucking availability is worsening. Labor shortages are causing issues. We could do much more business if we had more people and access to more products.” [Wholesale Trade]

Source: ISM World

From The TradersCommunity News Desk