The services economy recorded another month of growth in August, according to the new edition of the ISM Report on Business, released today by the Institute for Supply Management (ISM).
The services PMI — at 54.5 (a reading of 50 or higher signals growth) — rose 1.8%, growing faster for the eighth straight month. According to the ISM, the service sector has seen growth in 38 of the last 39 months, with December 2022 being the only month with a decline.
The August services PMI is 1.2% above the 12-month moving average of 53.3, with 55.9 in September 2022 and 49.2 in December 2022 marking the respective highs and lows for the period.
ISM reported that 13 of the 18 service sectors it tracks grew in August, including: real estate, rentals and leasing; Accommodation and catering; other services; arts, entertainment and leisure; utilities; Retail trade; Public administration; Information; educational services; Construction; finance and insurance; Transport and Storage; and professional, scientific and technical services. The five sectors that posted declines included: agriculture and forestry, fisheries and hunting; Mining; Wholesale; health care and social assistance; and management of businesses and support services.
The report’s equally weighted sub-indices, which feed directly into the NMI, were positive from July to August, including:
- Business activity/manufacturing rose 0.2% to 57.3, growing faster for the 39th straight month with 12 sectors reporting growth;
- New orders rose 2.5% to 57.5, growing faster for the eighth straight month with 12 sectors reporting growth;
- Employment rose 4.0% to 54.7, growing faster for the third straight month, with the eighth sector reporting growth;
- The backlog fell 10.3% to 41.8 after rising in July, with five sectors reporting growth;
- Supplier shipments were 48.5 (a reading above 50 indicates slower shipments), down 0.4% year-on-year. They grew faster and slower for the seventh consecutive month, with four sectors reporting slower shipments.
- Prices rose 2.1% to 58.9, rising faster for the 75th straight month with 12 sectors reporting growth;
- Inventories were at 57.7, up 7.3%, growing faster for the fourth straight month and slowing for the 73rd consecutive month, with 12 sectors reporting growth; And
- Prices rose 2.1% to 58.9, climbing faster for the 75th consecutive month, with 12 sectors reporting growth
Comments from ISM members included in the report highlighted various problems seen in the service sector.
“Supply chain challenges are impacting some of our purchases because they include products and components that are manufactured outside of the United States and can experience delivery delays and problems,” said a Management of Companies & Support Services respondent. “The prices of materials and other products have increased slightly. The distribution of some direct materials has been changed due to an important financial issue from the supplier.”
One retail respondent said business activity continued to be down year-on-year and his company was meeting year-to-date guidance.
Tony Nieves, chairman of the ISM’s Services Business Survey Committee, said in an interview that the metrics in the August report are about a month ahead of expectations.
“This was mainly due to the 4.0% increase on the employment side,” he said. “That’s a nice bump. “Although the jobs report for August was below expectations, it is still slightly above the pre-pandemic average. I’m excited to see where September will end up as it’s always a crucial month after summer and preparing for the holiday season. I think we will stay on this path in the future and grow step by step.”
Nieves added that the transportation and storage PMI was just above the base 50, while wholesale trade contracted. And in terms of business activity, he noted that the sector was flat from July to August, with wholesale trading showing a rise.
“Transportation and storage are very important for the service sector as they act as intermediaries,” he said. “Your volume tells you what’s happening between upstream on the manufacturing side and the distribution channel to the end user on the service side.”
Looking ahead, Nieves says we can expect a slight shift in September and October, which could see less spending on services and experiences and more on consumer goods, while spending on services and experiences continues, albeit at a slower pace.
“It could pick up steam around the holidays, especially around Thanksgiving, which is the busiest travel time of the year.”
Nieves commented on the 7.3% rise in inventories, explaining that this is related to large shipments ordered some time ago now arriving.
“In the past, there have been larger volumes of orders because demand exceeded supply, and now companies are trying to get their inventories right, but they’ve been piling all that up,” he said. “And there’s still stuff lying around in the warehouses that hasn’t moved that often, and that depends on the commodity in the industry.”
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