US Service Sector Resilient in September ISM Shows as Price Pressures Ease

The ISM Non-Manufacturing Index for September pulled back to 56.7% (consensus 56.0%) from 56.9% in August. Employment surged as prices paid by businesses for inputs fell to more than a 1-1/2-year low, suggesting an underlying strength in the economy despite rising interest rates. Businesses continued to wrestle with pricing pressures, supply chain issues, and labor supply constraints. New orders received by services businesses slipped to 60.6 from 61.8 in August. Businesses, however, reported a rise in exports.

The 12-month average is 59.20 percent, which reflects consistently strong growth in the services sector. The September composite index indicated growth for the 28th consecutive month after a two-month contraction in April and May 2020.

via Cheatsheet

The dividing line between expansion and contraction is 50.0

Highlights

  • ISM Non-Manufacturing Index for September dipped to 56.7% (consensus 56.0%) from 56.9% in August.
  • The New Orders Index slipped to 60.6% from 61.8%.
  • The Production Index increased fell to 59.1% from 60.9%.
  • The Prices Index dropped to 68.7% from 71.5%.
  • The Employment Index jumped to 53.0% from 50.2%.
  • The Supplier Deliveries Index decreased to 53.9% from 54.5%.
  • The Backlog of Orders Index declined to 52.5% from 53.9%.

“The Supplier Deliveries Index registered 53.9 percent, 0.6 percentage point lower than the 54.5 percent reported in August. (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.)

ISM reported Monday its manufacturing PMI dropped in September to the lowest reading since May 2020. Services activity is being supported by a shift in spending from goods, though demand for services is starting to slow.

“The Prices Index decreased for the fifth consecutive month in September, down 2.8 percentage points to 68.7 percent. Services businesses still continue to struggle to replenish their stocks, as the Inventories Index contracted for the fourth consecutive month; the reading of 44.1 percent is down 2.1 percentage points from August’s figure of 46.2 percent. The Inventory Sentiment Index (47.2 percent, up 0.1 percentage point from August’s reading of 47.1 percent) contracted for the second consecutive month in September.”

WHAT RESPONDENTS ARE SAYING

  • “Sales at our restaurants seasonally trend down from August to October, and this year seems to be more severe compared to before the pandemic. General inflation concerns and consumer uncertainty are the likely causes, expressed by industry peers as well.” [Accommodation & Food Services]
  • “General slowdown in sales. We believe high commodity prices and inflation have impacted consumers’ desire for fertilizer from our turf and ornamental division. Farmers have already cut back on consumption due to pricing and weather-related issues.” [Agriculture, Forestry, Fishing & Hunting]
  • “September is one of our slowest months of the year. We are gearing up to have a very busy fourth quarter and are seeing some signs of relief in our supply chain.” [Arts, Entertainment & Recreation]
  • “Sales have slowed significantly. Very challenging market. Trying to build through backlog. Manufacturers, distributors and installation trades are still busy and passing on price increases, while we are discounting homes to stimulate sales. Margins are compressing.” [Construction]
  • “Due to supply chain issues and inflation, we continue to limit purchases and/or start orders sooner than normal. In the higher education sector, the outlook is good for larger schools.” [Educational Services]
  • “Labor pressures continue to depress business activity, as insufficient staffing levels are not allowing the hospital system to operate at capacity. Back orders remain unchanged from a month ago as shortages of raw materials — especially surgical grade Tyvek (synthetic polyethylene fiber), foam and plastics — persist and do not appear to be improving. Logistical lead times have decreased, but the impact on supply chains is limited amid product shortages.” [Health Care & Social Assistance]
  • “Hiring continues to be a challenge across most industry sectors. There are far more open roles than candidates to fill them. Due to inflationary concerns, companies are being cautious about hiring direct employees and are attempting to utilize contingent labor. The lack of candidates willing to fill temporary positions is making this strategy difficult to execute.” [Professional, Scientific & Technical Services]
  • “Chip shortage shows no signs of abating.” [Retail Trade]
  • “Prices of fuel are leveling off (or) dropping in small increments. Still facing supply/demand issues with certain products — food, beverages, some raw construction material and semiconductor chips. Big concern is (China’s) zero-tolerance policy for COVID-19 cases. A lot of companies rely on products from China, and cities keep shutting down due to the policy. This greatly affects the orders outstanding and creates lead time uncertainty.” [Transportation & Warehousing]
  • “Business activity has improved over last month but is still trending flat to slightly down versus the same period last year. Inventory levels are starting to fall from record highs, but overstocked items are still a problem. We expect lower demand and inventory rebalancing to impact business activity through the end of the calendar year.” [Wholesale Trade]

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price

Cheese; Chicken (2); Concrete; Dairy; Drywall; Eggs; Electrical Components (20); Electrical Equipment; Electronic Components; Food and Beverages; Furniture; Labor (22); Labor — Construction (2); Labor — Contingent (3); Labor — Full Time; Labor — Services; Labor — Temporary (2); Natural Gas (2); Paper; Pipe and Fittings; Plumbing Services; Potato Products; Semiconductors; Soybean Oil (2); Steel Products* (21); Sugar; Transformers; and Truck Rentals.

Commodities Down in Price

Diesel Fuel (2); Fuel (3); Gasoline (2); Lumber; Ocean Freight (2); Polyvinyl Chloride (PVC) Products; Steel; and Steel Products* (2).

Commodities in Short Supply

Appliances; Electrodes; Food Products; Heating, Ventilation and Air Conditioning (HVAC) Equipment; Labor (14); Microchips (5); Needles and Syringes; Paper (2); Plastic Pipes and Fittings; Transformers; Vacutainers; and Vehicles (3).

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®

  • Sep 2022 56.7
  • 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 – 59.20
High – 68.4
Low – 55.3


Business Activity

The 14 industries reporting an increase in business activity for the month of September — listed in order — are: Mining; Information; Other Services; Educational Services; Wholesale Trade; Health Care & Social Assistance; Finance & Insurance; Utilities; Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Public Administration; Professional, Scientific & Technical Services; Retail Trade; and Transportation & Warehousing. The two industries reporting a decrease in business activity for the month of September are: Accommodation & Food Services; and Arts, Entertainment & Recreation.

New Orders

Thirteen industries reported growth of new orders in September, in the following order: Mining; Other Services; Retail Trade; Educational Services; Real Estate, Rental & Leasing; Information; Public Administration; Wholesale Trade; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Professional, Scientific & Technical Services; Finance & Insurance; and Utilities. The two industries reporting a decrease in new orders in September are: Arts, Entertainment & Recreation; and Transportation & Warehousing.

Employment

The 10 industries reporting an increase in employment in September — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Mining; Retail Trade; Construction; Public Administration; Professional, Scientific & Technical Services; Educational Services; Other Services; Wholesale Trade; and Transportation & Warehousing. The two industries reporting a decrease in employment in September are: Real Estate, Rental & Leasing; and Accommodation & Food Services. Six industries reported no change in Employment in September

Supplier Deliveries

The 10 industries reporting slower deliveries in September — listed in order — are: Mining; Other Services; Utilities; Public Administration; Real Estate, Rental & Leasing; Management of Companies & Support Services; Professional, Scientific & Technical Services; Educational Services; Finance & Insurance; and Wholesale Trade. The six industries reporting faster supplier deliveries for the month of September — listed in order — are: Arts, Entertainment & Recreation; Retail Trade; Accommodation & Food Services; Transportation & Warehousing; Information; and Health Care & Social Assistance.

Inventories

The eight industries reporting an increase in inventories in September — listed in order — are: Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Information; Wholesale Trade; Public Administration; and Transportation & Warehousing. The 10 industries reporting a decrease in inventories in September — listed in order — are: Real Estate, Rental & Leasing; Finance & Insurance; Other Services; Arts, Entertainment & Recreation; Management of Companies & Support Services; Retail Trade; Health Care & Social Assistance; Educational Services; Construction; and Professional, Scientific & Technical Services.

Prices

All 18 services industries reported an increase in prices paid during the month of September, in the following order: Arts, Entertainment & Recreation; Public Administration; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Utilities; Real Estate, Rental & Leasing; Finance & Insurance; Information; Retail Trade; Construction; Other Services; Mining; Professional, Scientific & Technical Services; Educational Services; Accommodation & Food Services; Wholesale Trade; and Transportation & Warehousing.

Backlog of Orders

The 10 industries reporting an increase in order backlogs in September — listed in order — are: Information; Management of Companies & Support Services; Finance & Insurance; Mining; Other Services; Educational Services; Utilities; Professional, Scientific & Technical Services; Construction; and Health Care & Social Assistance. The four industries reporting a decrease in order backlogs in September are: Retail Trade; Agriculture, Forestry, Fishing & Hunting; Public Administration; and Transportation & Warehousing.

New Export Orders

The six industries reporting an increase in new export orders in September — listed in order — are: Management of Companies & Support Services; Real Estate, Rental & Leasing; Retail Trade; Information; Mining; and Educational Services. The three industries reporting a decrease in new export orders in September are: Other Services; Transportation & Warehousing; and Wholesale Trade. Nine industries indicated no change in new export orders in September.

Imports

The six industries reporting an increase in imports for the month of September — listed in order — are: Mining; Accommodation & Food Services; Educational Services; Information; Construction; and Wholesale Trade. The three industries that reported a decrease in imports in September are: Other Services; Professional, Scientific & Technical Services; and Health Care & Social Assistance. Nine industries reported no change in imports in September.

Inventory Sentiment

The five industries reporting sentiment that their inventories were too high in September are: Arts, Entertainment & Recreation; Retail Trade; Construction; Wholesale Trade; and Health Care & Social Assistance. The seven industries reporting a feeling that their inventories were too low in September — listed in order — are: Real Estate, Rental & Leasing; Management of Companies & Support Services; Transportation & Warehousing; Information; Public Administration; Professional, Scientific & Technical Services; and Utilities. Six industries reported no change in September.

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 October 2022 data will be released at 10:00 a.m. ET on Thursday, November 3, 2022.

Source: ISM World

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