The ISM Non-Manufacturing Index for June was much higher than expectations at 53.9% (consensus 51.1%), increasing from 50.3% in May. The increase from May underscores the activity in the services sector picking up steam in June. The New Orders Index expanded in June for the sixth consecutive month after contracting in December for the first time since May 2020; rising to 55.5 versus 52.9 expected. The employment index rose to 53.1 versus 49.2 prior and new orders rose to 55.5 versus 52.9 expected. At the same time the prices paid index fell to 54.1 versus 56.2 prior.
The trend tempers hard-landing fears and presumably contribute to the Fed’s inclination to implement additional tightening. The dividing line between expansion and contraction is 50.0%. 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 dividing line between expansion and contraction is 50.0%.
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 June reading reflects continued growth in the services sector at a somewhat faster pace than the prior month.
The sector has grown in 36 of the last 37 months, with the lone contraction in December.
“There has been an uptick in the rate of growth for the services sector. This is due mostly to the increase in business activity, new orders and employment. Increased capacity, backlog reduction and continued improvements in logistics have impacted delivery times (resulting in a decrease in the Supplier Deliveries Index). The majority of respondents indicate that business conditions remain stable; however, they are cautious relative to inflation and the future economic outlook.”
– Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management
Highlights Services PMI June 2023
- The Services PMI index 53.9 vs 51.0 estimate. Prior month 50.3
- Business Activity Index at 59.2%
- New Orders Index at 55.5% versus 52.9 expected.
- Employment Index at 53.1% versus 49.2 last month
- Supplier Deliveries Index at 47.6% versus 47.7 last month
- Prices paid index 54.1 versus 56.2 prior
- new export orders 61.5 versus 59.0 last month
- imports 54.6 versus 50.0 last month
- backlog of orders 43.9 versus 40.9 last month
- inventories 55.9 versus 58.3 last month
- inventory sentiment 54.0 versus 61.0 last month
The 12-month average is 54.50 percent, which reflects consistently strong growth in the services sector.
WHAT RESPONDENTS ARE SAYING
- “Stabilizing inflation rates are helping our overall situation. (High inflation has) done much to disrupt our pricing for services and rent over the past two years.” [Agriculture, Forestry, Fishing & Hunting]
- “We have been very busy in June, with great content coming out of the studios and the summer guest traffic.” [Arts, Entertainment & Recreation]
- “Monitoring China’s anti-espionage legislation going into effect on July 1 that may have an impact on normal supply chain business operations like market research, recruitment, trade secret leakage, employing former government officials and data sharing between Chinese and foreign companies in joint domestic or cross-border projects, including transfer of technology or information sharing.” [Construction]
- “General business conditions are still active and steady. We’re ramping up for a busy third quarter with some expansion and preparations for early 2024 capital projects.” [Finance & Insurance]
- “Strong procedural volumes are driving above-budget revenue performance, but profitability continues to suffer due to higher expenses. Inflationary pressures, staffing challenges, limited capacity and insufficient payer rates continue to financially challenge the health system. Supply chains continue to moderately improve.” [Health Care & Social Assistance]
- “Supply chain lead times have stabilized and prices are holding or, in some cases, dropping slightly. It’s been a long time coming.” [Information]
- “Our company is maintaining an overall cautious approach, with inflation and the economy as main concerns. With oil prices stabilizing at around (US) $70 a barrel, we hope they start refilling the Strategic Petroleum Reserve to replace the oil withdrawn via emergency-use release during the pandemic.” [Management of Companies & Support Services]
- “Increased demand for new transformation programs, with prices holding and an increase in clients’ capital budget allocations.” [Professional, Scientific & Technical Services]
- “Business remains higher than a year ago but is falling short of forecasts and projections.” [Real Estate, Rental & Leasing]
- “Overall business conditions are good, but growth is at a slow pace.” [Retail Trade]
- “Labor rates continue to be a challenge even with more people looking to return to work. Inflation is most likely a cause for this. Some incremental lower pricing on food.” [Transportation & Warehousing]
- “High operational expenses continue to put pressure on our business and limit hiring. Service levels from suppliers continue to improve. Trucking metrics and sales also improved.” [Wholesale Trade]
COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY
Commodities Up in Price
Beef (2); Construction Subcontractors; Copper Based Materials; Electrical Components (29); Fuel (4); Gasoline (5); Heating, Ventilation and Air Conditioning (HVAC) Equipment; Labor (31); Labor — Skilled (5); Lumber*; Maintenance, Repair and Operating (MRO) Supplies; Oriented Strand Board (OSB); and Wood Pallets (2).
Commodities Down in Price
Freight; Lumber*; and Transportation.
Commodities in Short Supply
Appliances (7); Construction Contractors (2); Construction Subcontractors; Electrical Components (3); Labor (8); Labor — Construction (5); Labor — Skilled (2); and Transformers (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®
- Jun 2023 53.9
- May 2023 50.3
- 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
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.
Source: ISM World
From The TradersCommunity News Desk