Services sector activity remains strong, reports ISM

Services economy activity recorded another month of growth in September, according to the new edition of the Services ISM Report on Business, released today by the Institute for Supply Management (ISM).

The services PMI – at 56.7 (a reading of 50 or more growth signals) – was down 0.2% from August, rising, at a slower pace, for the 28th consecutive month, with a months, with service sector growth intact for 150 of the last 152 months through September.

September’s Services PMI is 2.5% below the 12-month average of 59.2, with November 2021’s 68.4 and June’s 55.3 marking the highs and lows for the period, respectively.

The ISM reported that 15 of the services sectors it tracks posted year-over-year gains in September, including: mining; Other services; Educational services; Agriculture, Forestry, Fishing & Hunting; Public administration; Retail business; Wholesale trade; Information; Utilities; Professional, scientific and technical services; health care and social assistance; Finance & Insurance; Real estate, rental and leasing; Construction; and Business Management & Support Services. The three sectors that recorded declines were: accommodation and food services; Arts, entertainment and recreation; and Transportation and Warehousing.

The report’s equally weighted sub-indices that take the NMI directly into account were mostly down from August to September, including:

  • Commercial activity/production, at 59.1, down 1.8%, growing, at a slower pace, for the 28th consecutive month, with 14 service sectors growing;
  • New orders, at 60.6, down 1.2%, also growing, at a slower pace for the 28th consecutive month, with 13 service sectors growing;
  • Employment, at 53.0, rose 2.8%, growing at a faster pace for the second month in a row, as 10 service sectors recorded growth;
  • Shipments from suppliers, at 53.9, fell 0.6%, slowing, to a slower pace, for the 40th consecutive month; and
  • Prices, at 68.7, were down 2.8%, rising, at a slower pace, for the 64th consecutive month

Comments from ISM member respondents included in the report highlighted various issues observed in the service sector.

“Fuel prices are stabilizing (or) falling in small increments,” said a transportation and warehousing respondent. “Still facing supply and demand issues with certain products: food, beverages, some raw building materials and semiconductor chips. (China’s) zero-tolerance policy for COVID-19 cases is of great concern. Many businesses depend on products from China and cities continue to close due to this policy. This considerably affects current orders and creates uncertainty about deadlines.

And a wholesale respondent said business activity had improved from a month ago, but was flat or slightly down from the same time last year. The respondent added that inventory levels were beginning to fall from record highs, but overstocked items were still a problem, in the hopes that his business could expect lower demand and inventory rebalancing have an impact on business activity until the end of the calendar year.

Tony Nieves, chair of the ISM’s Services Business Survey Committee, said in an interview that this report on an annual basis consistently matches GDP, with a high percentage of GDP on the services side being more labor intensive. labor and less dependent on tangible assets.

“Overall, the services sector is holding up, especially when you see new orders at 60.6,” he said. “This tells us that the pipeline is still very strong, but keep in mind that the cycle time is still much shorter than it is on the manufacturing side. This could change in two months, with a services PMI to low 50s by year end as things get ready in retail and other areas for the holiday season.

Additionally, he said there are past historical patterns that are no longer intact, due to the pandemic, which has blurred seasonality, as seen previously, in hopes that there is no will be no alignment, in terms of normal seasonality trends. , maybe until 2023.

“What we’re seeing now is that things are still strong despite inflation,” he said. “We know some industries have been hammered by interest rates, but not to the point where there is less month-over-month growth, because there are still remnants of what was in the works in the past.”

Using real estate rental and leasing, which is the biggest contributor to GDP on the services side, as an example, he said the sector is trying to enter as fast as possible ahead of the next steps for interest rates, while business for mortgage brokers and lenders remains busy, although sales have declined in recent months.

Looking ahead to the rest of 2023, Nieves is optimistic that the services sector will end things strong, with the possibility that the services PMI will decline slightly by the end of the year compared to its level. current. He added that employment is expected to stay above 50, boosted by the holiday season, but January could tell a different story.

“There are a lot of variables and wild cards in the mix here,” he said. “But our respondents are optimistic, in that they don’t see a recession coming or any type of pullback coming by 2022…but they also said they don’t know what 2023 has in store for them. I think we we’ll have a better idea of ​​that in December.

About the Author

Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics management, Modern material handlingand Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine where he covers all aspects of the supply chain, logistics, freight forwarding and material handling industries on a daily basis. Contact Jeff Berman

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