The ISM Non-Manufacturing Index for April increased to 51.9% (consensus 51.9%) from 51.2% in March. The US services sector expanded in February for the fourth consecutive month. Business activity for the services sector, which comprises the largest component of U.S. economic activity, has quickly rebounded into growth mode after contracting for the first time since May 2020 in December. The majority of respondents are mostly positive about business conditions, yet some see headwinds related to inflation and an economic slowdown.
This is supportive for the soft-landing scenario. The dividing line between expansion and contraction is 50.0%, so the April reading reflects continued growth in the services sector at a somewhat faster pace than the prior month.
The dividing line between expansion and contraction is 50.0%.
The sector has grown in 34 of the last 35 months, with the lone contraction in December.
“The Supplier Deliveries registered 47.6 percent in February, indicating the fastest delivery performance since June 2009, when the index registered 46 percent. The February reading is 2.4 percentage points lower than the 50 percent recorded in January. (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.)”
– Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management
Highlights
- The Services PMI index 51.9 vs 51.8 estimate. Prior month 51.2
- Business Activity Index at 52% versus 55.4 last month
- New Orders Index at 56.1% versus 52.2 last month
- Employment Index at 50.8% versus 51.3 prior
- Supplier Deliveries Index at 48.6% versus 45.8 last month
- prices paid index 59.6 versus 59.5 last month
- new export orders 60.9 versus 43.7 last month
- imports 51.3 versus 43.6 last month
- backlog of orders 49.7 versus 48.5 last month
- inventories 47.2 versus 52.8 last month
- inventory sentiment 48.9 versus 57.9 last month
The 12-month average is 55.50 percent, which reflects consistently strong growth in the services sector.
WHAT RESPONDENTS ARE SAYING
- “Lead times are improving. Suppliers are struggling with how to position themselves with pricing; those keeping prices higher despite a drop in input costs are at risk of losing their business to those that are willing to adjust prices in line with lower input costs.” [Accommodation & Food Services]
- “High mortgage rates continue to weigh on new residential construction. With demand down, material suppliers are curtailing production to maintain pricing levels. Labor continues to be constrained, but some negotiation room is developing as the slowdown drags on.” [Construction]
- “At the beginning of the second quarter, business conditions are steady, and we’re preparing for planned expansion in the third quarter. Watching the economy and overall market forecasts and trends.” [Finance & Insurance]
- “We continue to see strong patient volumes and revenue performance, though inflationary pressures and labor shortages still persist. Supply chain performance is improving, but there are still some major medical/surgical equipment suppliers who seem to be stuck in a perpetual back-ordered state with forecasted ‘get well’ dates well into May. Overall, we expect to see gradual improvement in the next quarter.” [Health Care & Social Assistance]
- “Inflation concerns has our company maintaining a cautious approach to the future.” [Management of Companies & Support Services]
- “We are well on track to still see significant growth in production through calendar year 2023, as well as 2024 and 2025. We are seeing significant increases in order backlogs and inventory on hand to support the increased production, as well as several attempts to increase employment levels needed to support (forecasted) production increases.” [Professional, Scientific & Technical Services]
- “Lead times on construction equipment and steel are still long, especially for HVAC (heating, ventilation and air conditioning) equipment and generators.” [Public Administration]
- “Retail environment is lower year over year, but trends are stable year to date. Inventory levels are coming more in line to match the new lower demand trends.” [Retail Trade]
- “Material prices continue to decline — except for energy and chemicals — but are still above pre-pandemic levels. inflation and recession uncertainties still weigh on decisions.” [Utilities]
- “Prices are coming down, but the decreases are small and not materially close to 2019 pricing. Labor in general is still and issue.” [Transportation & Warehousing]
- “Business activity remains relatively flat compared to last month. Inventories are much more balanced versus demand, and supply chains are near full recovery. Optimistic about demand and business activity in later spring and summer months.” [Wholesale Trade]
COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY
Commodities Up in Price
Aluminum Products (2); Chemicals; Electrical Components (27); Electronic Components (4); Fuel (2); Gasoline (3); Labor (29); Labor — Construction; Labor — Skilled (3); Maintenance, Repair and Operating (MRO) Supplies; Pharmaceuticals (2); Resins; Steel; and Steel Products* (2).
Commodities Down in Price
Chicken Products; Copper Based Products; Eggs; and Steel Products*.
Commodities in Short Supply
Appliances (5); Construction Materials; Electrical Components; Heating, Ventilation and Air Conditioning (HVAC) Equipment; Labor (6); Labor — Construction (3); Needles and Syringes (4); Semiconductors (4); Tourniquets (3); Transformers (8); and Vehicles (10).
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®
- Apr 2023 51.9
- Mar 2023 51.2
- Feb 2023 55.1
- Jan 2023 55.2
- Dec 2022 49.2
- Nov 2022 56.5
- Oct 2022 54.4
- Sep 2022 56.7
- Aug 2022 56.9
- 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 – 54.5
High – 56.4
Low – 49.2
Business Activity
ISM®’s Business Activity Index registered 52 percent in April, a decrease of 3.4 percentage points from the reading of 55.4 percent in March, indicating growth for the 35th consecutive month. Comments from respondents include: “New customers added as our business continues to grow” and “We have received less business from our clients this month as they tighten spending for a potential downswing in the economy.”
The 14 industries reporting an increase in business activity for the month of April — listed in order — are: Other Services; Accommodation & Food Services; Arts, Entertainment & Recreation; Educational Services; Public Administration; Transportation & Warehousing; Utilities; Retail Trade; Wholesale Trade; Professional, Scientific & Technical Services; Health Care & Social Assistance; Information; Construction; and Finance & Insurance. The two industries reporting a decrease in business activity for the month of April are: Mining; and Management of Companies & Support Services.
New Orders
ISM®’s New Orders Index registered 56.1 percent, up 3.9 percentage points from the March reading of 52.2 percent. The index indicated expansion for the fourth consecutive month after contracting in December, ending a string of 30 consecutive months of growth. Comments from respondents include: “Demand outpacing forecasts” and “New requests for services from customers.”
The 16 industries reporting an increase in new orders for the month of April — listed in order — are: Arts, Entertainment & Recreation; Other Services; Accommodation & Food Services; Retail Trade; Health Care & Social Assistance; Public Administration; Real Estate, Rental & Leasing; Educational Services; Finance & Insurance; Wholesale Trade; Transportation & Warehousing; Professional, Scientific & Technical Services; Utilities; Management of Companies & Support Services; Information; and Construction. The only industry reporting a decrease in new orders for the month of April is Mining.
Employment
Employment activity in the services sector grew in April for the third consecutive month, with the index registering 50.8 percent, down 0.5 percentage point from the March figure of 51.3 percent. This is the most stability for the Employment Index in more than a year, as it ping-ponged between expansion and contraction nine times in 2022, never spending more than two months above or below 50 percent. Comments from respondents include: “We continue to hire to build up our staffing levels” and “Attrition without backfills.”
The eight industries reporting an increase in employment in April — listed in order — are: Arts, Entertainment & Recreation; Accommodation & Food Services; Construction; Utilities; Other Services; Transportation & Warehousing; Professional, Scientific & Technical Services; and Public Administration. The two industries reporting a decrease in employment in April are: Finance & Insurance; and Educational Services. Eight industries reported no change in employment in April.
Supplier Deliveries
The Supplier Deliveries Index registered 48.6 percent, up 2.8 percentage points from the 45.8 percent recorded in March. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. The April reading indicates supplier deliveries are faster, but at a slower rate compared to the previous month. Comments from respondents include: “Supply chain capacity continues to increase” and “Suppliers are catching up as demand has flattened and raw material shortages are improving.”
The only industry reporting slower deliveries in April is Real Estate, Rental & Leasing. The 11 industries reporting faster supplier deliveries for the month of April — listed in order — are: Wholesale Trade; Accommodation & Food Services; Construction; Agriculture, Forestry, Fishing & Hunting; Information; Retail Trade; Transportation & Warehousing; Utilities; Educational Services; Public Administration; and Health Care & Social Assistance. Six industries reported no change in supplier deliveries.
Inventories
The Inventories Index contracted in April after two consecutive months of growth and eight months of contraction before that. The index indicated four months of growth from February to May 2022 and eight months of contraction from June 2021 to January 2022. The reading of 47.2 percent in April was a 5.6-percentage point decrease from the 52.8 percent reported in March. Of the total respondents in April, 41 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Continuing to run down inventory levels to a pre-pandemic level; we have excess personal protective equipment (PPE) at this time” and “Supply chain has stabilized, which is helping shorten lead times.” Also: “Companies are ordering material based on plans to avoid high inventories.”
The four industries reporting an increase in inventories in April are: Arts, Entertainment & Recreation; Public Administration; Utilities; and Professional, Scientific & Technical Services. The six industries reporting a decrease in inventories in April — listed in order — are: Real Estate, Rental & Leasing; Mining; Wholesale Trade; Retail Trade; Management of Companies & Support Services; and Health Care & Social Assistance. Eight industries reported no change in April.
Prices
Prices paid by services organizations for materials and services increased in April for the 71st consecutive month, with the index registering 59.6 percent, 0.1 percentage point higher than the 59.5 percent recorded in March. The Prices Index continues to indicate movement toward equilibrium, with a 10th consecutive reading near or below 70 percent, following 10 straight months of readings near or above 80 percent.
Fifteen services industries reported an increase in prices paid during the month of April, in the following order: Utilities; Other Services; Public Administration; Information; Construction; Health Care & Social Assistance; Mining; Retail Trade; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Finance & Insurance; Wholesale Trade; Transportation & Warehousing; and Educational Services. The only industry reporting a decrease in prices for April is Agriculture, Forestry, Fishing & Hunting.
Backlog of Orders
The ISM® Services Backlog of Orders Index contracted in April for the second consecutive month after a previous stretch of 26 months of growth. The index registered 49.7 percent, 1.2 percentage points higher than the March reading of 48.5 percent. Of the total respondents in April, 48 percent indicated they do not measure backlog of orders. Respondent comments include: “Receiving materials from overdue orders” and “Supply chain backlog easing domestically, and international orders are supplementing requirements.”
The five industries reporting an increase in order backlogs in April are: Agriculture, Forestry, Fishing & Hunting; Information; Health Care & Social Assistance; Management of Companies & Support Services; and Professional, Scientific & Technical Services. The six industries reporting a decrease in order backlogs in April — listed in order — are: Arts, Entertainment & Recreation; Mining; Wholesale Trade; Public Administration; Finance & Insurance; and Construction. Seven industries reported no change in order backlogs in April.
New Export Orders
Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based companies grew in April after a contraction in March preceded by two months of expansion. The index indicated contraction from October to December 2022, with eight months (February-September 2022) of growth before that. The New Export Orders Index registered 60.9 percent in April, a substantial 17.2-percentage point increase from the 43.7 percent reported in March. Of the total respondents in April, 76 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.
The six industries reporting an increase in new export orders in April — listed in order — are: Construction; Real Estate, Rental & Leasing; Retail Trade; Information; Professional, Scientific & Technical Services; and Wholesale Trade. The two industries reporting a decrease in new export orders in April are: Management of Companies & Support Services; and Transportation & Warehousing. Ten industries reported no change in new export orders in April.
Imports
The Imports Index registered 51.3 percent in April, up 7.7 percentage points from March’s reading of 43.6 percent. The index has indicated expansion in seven of the last eight months, with the only contraction in March. Sixty-four percent of respondents reported that they do not use, or do not track the use of, imported materials.
The five industries reporting an increase in imports for the month of April are: Retail Trade; Information; Utilities; Professional, Scientific & Technical Services; and Wholesale Trade. The five industries that reported a decrease in imports in April are: Other Services; Agriculture, Forestry, Fishing & Hunting; Educational Services; Management of Companies & Support Services; and Health Care & Social Assistance. Eight industries reported no change in imports in April.
Inventory Sentiment
The ISM® Services Inventory Sentiment Index contracted in April after four consecutive months of growth preceded by four months of contraction. The index registered 48.9 percent, a 9-percentage point decrease from March’s figure of 57.9 percent. This reading indicates that respondents feel their inventories are too low when correlated to business activity levels.
The 11 industries reporting sentiment that their inventories were too high in April — listed in order — are: Arts, Entertainment & Recreation; Wholesale Trade; Mining; Information; Other Services; Utilities; Construction; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Health Care & Social Assistance; and Management of Companies & Support Services. The four industries reporting a feeling that their inventories were too low in April are: Real Estate, Rental & Leasing; Transportation & Warehousing; Professional, Scientific & Technical Services; and Public Administration.
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 May 2023 data will be released at 10:00 a.m. ET on Monday, June 5, 2023.
Source: ISM World
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