The ISM Non-Manufacturing Index for November increased to 55.2%, well ahead of a consensus 50.3% and up from 49.6% in December. Business activity for the services sector, which comprises the largest component of U.S. economic activity, quickly rebounded into growth mode after contracting for the first time since May 2020 in December. This is supportive for the soft-landing scenario. The report follows the blowout January jobs report also released Friday indicating the economy is still hotter than the Federal Reserve would like at this time.
The dividing line between expansion and contraction is 50.0%.
“Supplier deliveries continued to slow, albeit at a slower rate in November. Based on comments from Business Survey Committee respondents, increased capacity and shorter lead times have resulted in a continued improvement in supply chain and logistics performance. A new fiscal period and the holiday season have contributed to stronger business activity and increased employment.”
– Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management
Highlights
- The New Orders Index jumped to 60.4% from 45.2%.
- The Business Activity/Production Index rose to 60.4% from 53.5%.
- The Prices Index dipped to 67.8% from 68.1%.
- The Employment Index moved to 50.0% from 49.4%.
- The Supplier Deliveries Index increased to 50.0% from 48.5%.
- The Backlog of Orders Index rose to 52.9% from 51.5%.
The 12-month average is 60.80 percent, which reflects consistently strong growth in the services sector.
WHAT RESPONDENTS ARE SAYING
- “Raw material availability and lead times have improved but still pose a challenge. In our outlook, we are positive about growth. Consumer confidence is returning, and people are more willing to spend money on luxury items.” [Accommodation & Food Services]
- “Generally, business is strong. Limitations in such areas as labor and packaging keep sales from exceeding expectations.” [Agriculture, Forestry, Fishing & Hunting]
- “New residential housing market is still reeling from mortgage rate increases. Sales have fallen off dramatically at entry-level price points, as costs are trending flat.” [Construction]
- “Demand for services remains high, yet we continue to satisfy demand despite continuing supply chain disruptions. There is improvement in some categories, like blood collection supplies, that have been constrained for more than a year. Others are moderately improving but not to a level where consistency is maintained. Labor is also moderately improving, (helping reduce) staff burnout and fatigue. Forecast for 2023 is currently optimistic.” [Health Care & Social Assistance]
- “While there is still uncertainty in the marketplace, there is a general feeling that supply chain (issues) are relaxing. There is no unrealistic expectation that challenging times are behind us, but we are cautiously optimistic about 2023.” [Information]
- “Orders are strong, but it’s difficult to support customers’ expectations on delivery due to challenges in the supply chain.” [Other Services]
- “Modest increase in sales activity following the holiday slowdown. Still seeing warning signs of a national/international recession. Higher interest rates having an impact. Outlook for the first quarter of 2023 is still projected lower than the same period in 2022.” [Professional, Scientific & Technical Services]
- “We’re still experiencing delivery delays, but fewer than the past two years. Hopefully, lead times will return close to pre-COVID-19 levels.” [Real Estate, Rental & Leasing]
- “Coming off of peak season. Supply chains are solidifying, and capacities are better than in the past.” [Retail Trade]
- “Continued concerns regarding supply continuity. Energy supply costs are very high this winter season.” [Utilities]
- “The slowdown in new housing starts has made business slightly slower than previous years. We are also seeing a slowdown in e-commerce traffic and sales.” [Wholesale Trade]
COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY
Commodities Up in Price
Beef; Carbonated Beverages; Chemicals (2); Eggs; Electrical Components (24); Electronic Components; Food and Beverages (2); Freesheet Paper; Janitorial Supplies; Labor (26); Labor — Contract; Natural Gas; Pallets; and Soy Products.
Commodities Down in Price
Diesel; Fuel (6); Gasoline (6); Lumber (2); Steel; and Steel Products.
Commodities in Short Supply
Appliances (2); Brass Fittings (2); Circuit Breakers; Electrical Equipment; Electronics; Labor (3); Needles and Syringes; Paper Products; Plastics; Semiconductors; Transformers (5); and Vehicles (7).
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®
- 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 – 55.7
High – 58.4
Low – 49.2
Business Activity
ISM®’s Business Activity Index registered 60.4 percent in January, an increase of 6.9 percentage points from the seasonally adjusted reading of 53.5 percent in December, indicating growth for the 32nd consecutive month. Comments from respondents include: “New calendar year, new projects, and people returning from vacation” and “Projects running over and year-end projects starting.”
The 12 industries reporting an increase in business activity for the month of January — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Utilities; Public Administration; Other Services; Management of Companies & Support Services; Educational Services; Accommodation & Food Services; Health Care & Social Assistance; Construction; Professional, Scientific & Technical Services; Finance & Insurance; and Wholesale Trade. The four industries reporting a decrease in business activity for the month of January are: Transportation & Warehousing; Mining; Retail Trade; and Information.
New Orders
ISM®’s New Orders Index registered 60.4 percent, up 15.2 percentage points from the seasonally adjusted December reading of 45.2 percent. New orders grew after contracting in December for the first time after 30 consecutive months of growth. Comments from respondents include: “Increased production due to new customers” and “January is typically higher for us than December, as it’s the start of a new year versus a holiday month.”
Eleven industries reported growth of new orders in January, in the following order: Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Utilities; Other Services; Educational Services; Public Administration; Management of Companies & Support Services; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Finance & Insurance; and Health Care & Social Assistance. The four industries reporting a decrease in new orders in January are: Transportation & Warehousing; Information; Mining; and Wholesale Trade.
Employment
Employment activity in the services sector was unchanged in January after contracting in December. ISM®’s Employment Index registered 50 percent, up 0.6 percentage point from the seasonally adjusted December reading of 49.4 percent. Comments from respondents include: “Unable to hire qualified labor — supply is thin” and “We continue to let people go, not replacing any open positions.”
The eight industries reporting an increase in employment in January — listed in order — are: Mining; Agriculture, Forestry, Fishing & Hunting; Information; Accommodation & Food Services; Utilities; Wholesale Trade; Educational Services; and Public Administration. The seven industries reporting a decrease in employment in January — listed in order — are: Finance & Insurance; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Transportation & Warehousing; Retail Trade; Health Care & Social Assistance; and Professional, Scientific & Technical Services.
Supplier Deliveries
The Supplier Deliveries Index registered 50 percent, up 1.5 percentage points from the 48.5 percent recorded in December. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. This month’s reading indicates supplier deliveries is unchanged from December. Comments from respondents include: “Post-holiday freight has proven to be more efficient” and “Shortened lead times and increased fill rates.”
The six industries reporting slower deliveries in January — listed in order — are: Other Services; Management of Companies & Support Services; Real Estate, Rental & Leasing; Utilities; Health Care & Social Assistance; and Educational Services. The nine industries reporting faster supplier deliveries for the month of January — listed in order — are: Construction; Accommodation & Food Services; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Wholesale Trade; Retail Trade; Information; and Professional, Scientific & Technical Services.
Inventories
The Inventories Index contracted in January for the eighth consecutive month after four straight months of growth preceded by an eight-month period of contraction. The reading of 49.2 percent was a 4.1-percentage point increase from the 45.1 percent reported in December. Of the total respondents in January, 40 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Holiday sales drove down inventories, as expected” and “Inventory reduction plan implemented.”
The seven industries reporting an increase in inventories in January — listed in order — are: Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Utilities; Retail Trade; Transportation & Warehousing; and Wholesale Trade. The six industries reporting a decrease in inventories in January — listed in order — are: Construction; Management of Companies & Support Services; Public Administration; Information; Professional, Scientific & Technical Services; and Health Care & Social Assistance.
Prices
Prices paid by services organizations for materials and services increased in January for the 68th consecutive month, with the index registering 67.8 percent, 0.3 percentage points lower than the seasonally adjusted 68.1 percent recorded in December. The Prices Index continues to indicate movement toward equilibrium, with a seventh consecutive reading near or below 70 percent, following nine straight months of readings above 80 percent.
Fifteen services industries reported an increase in prices paid during the month of January, in the following order: Arts, Entertainment & Recreation; Management of Companies & Support Services; Real Estate, Rental & Leasing; Utilities; Educational Services; Other Services; Accommodation & Food Services; Health Care & Social Assistance; Public Administration; Professional, Scientific & Technical Services; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Information; Finance & Insurance; and Wholesale Trade. The only industry reporting a decrease in prices for January is Construction.
Backlog of Orders
The ISM® Services Backlog of Orders Index grew in January for the 25th consecutive month. The index registered 52.9 percent, 1.4 percentage points higher than the December reading of 51.5 percent. Of the total respondents in January, 39 percent indicated they do not measure backlog of orders. Respondent comments include: “Components are still slow to get to suppliers” and “Manufacturers still not meeting lead time targets in a lot of cases.”
The nine industries reporting an increase in order backlogs in January — listed in order — are: Management of Companies & Support Services; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Other Services; Retail Trade; Professional, Scientific & Technical Services; Public Administration; Finance & Insurance; and Health Care & Social Assistance. The five industries reporting a decrease in order backlogs in January are: Mining; Information; Transportation & Warehousing; Wholesale Trade; and Construction.
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 January after three months of contraction preceded by an eight-month period of growth. The New Export Orders Index registered 59 percent, a 11.3-percentage point increase from the 47.7 percent reported in December. Of the total respondents in January, 73 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.
The eight industries reporting an increase in new export orders in January — listed in order — are: Construction; Real Estate, Rental & Leasing; Retail Trade; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Utilities; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The five industries reporting a decrease in new export orders in January are: Arts, Entertainment & Recreation; Transportation & Warehousing; Information; Educational Services; and Wholesale Trade.
Imports
The Imports Index grew for the fifth consecutive month in January after three months of contraction, registering 53 percent, up 0.3 percentage point from December’s reading of 52.7 percent. Sixty-five percent of respondents reported that they do not use, or do not track the use of, imported materials.
The four industries reporting an increase in imports for the month of January are: Retail Trade; Agriculture, Forestry, Fishing & Hunting; Information; and Professional, Scientific & Technical Services. The three industries that reported a decrease in imports in January are: Mining; Wholesale Trade; and Educational Services. Eleven industries reported no change in imports in January.
Inventory Sentiment
The ISM® Services Inventory Sentiment Index grew in January for the second consecutive month, following four months of contraction. The index registered 55.8 percent, a 0.1-percentage point decrease from December’s figure of 55.9 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels.
The nine industries reporting sentiment that their inventories were too high in January — listed in order — are: Arts, Entertainment & Recreation; Mining; Wholesale Trade; Construction; Information; Retail Trade; Health Care & Social Assistance; Utilities; and Professional, Scientific & Technical Services. The five industries reporting a feeling that their inventories were too low in January are: Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Accommodation & Food 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 featuring February 2023 data will be released at 10:00 a.m. ET on Friday, March 3, 2023.
Source: ISM World
From The TradersCommunity News Desk