Services economy output grows in October while declining sequentially, reports ISM

October services economy output showed growth while seeing a sequential decline, according to the new edition of the Services ISM Report on Business, which was issued today by the Institute for Supply Management (ISM).

The Services PMI—at 54.4 (a reading of 50 or higher signals growth)—fell 2.3% compared to September, growing, at a slower rate, for the 29th consecutive month, with services sector growth intact for 151 of the last 153 months through October. What’s more, the October Services PMI reading came in at its lowest level going back to May 2020’s 45.2.

The September 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 respective high and low readings for that period.  

ISM reported that 16 of the services sectors it tracks saw growth in October, including: Mining; Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Transportation & Warehousing; Accommodation & Food Services; Construction; Utilities; Other Services; Information; Retail Trade; Professional, Scientific & Technical Services; Educational Services; Finance & Insurance; Public Administration; Health Care & Social Assistance; and Wholesale Trade. The two industries with decreases were Management of Companies & Support Services and Real Estate, Rental & Leasing.

The report’s equally weighted subindexes that directly factor into the NMI were mixed, from September to October, including:

  • Business activity/production, at 55.7, down 3.4%, growing, at a slower rate, for the 29th consecutive month, with 15 services sectors reporting growth, while citing slowing orders and holding off on building inventory;
  • New orders, at 56.5, down 4.1%, also growing, at a slower rate for the 29th consecutive month, with 13 services sectors reporting growth;
  • Employment, at 49.1, down 3.9%, contracting after two months of growth, with 11 services sectors reporting growth;
  • Backlog of orders, at 52.2, down 0.3%, growing, at a slower rate, for the 22nd consecutive month;
  • Supplier deliveries, at 56.2 (a reading above 50 indicates slower deliveries), up 2.3% compared to October, slowing, at a faster rate, for the 41st consecutive month, with nine services sectors reporting slower deliveries; and
  • Prices, at 70.7, rose 2.0%, increasing, at a faster rate, for the 65th consecutive month, with 17 services sectors reporting growth

Comments from ISM member respondents included in the report highlighted various issues being seen in the services sector.

“Business remains tepid. We have a general concern that sales volumes are trending down as buyers communicate that they’re planning to buy only what they need for immediate sales,” said an Agriculture, Forestry, Fishing & Hunting respondent.

And a retail trade respondent said that his company is in the final preparations for a successful holiday, despite lower sales, observing that labor is more available this year, and supply chain delays seem caught up for now.

Tony Nieves, Chair of the ISM’s Services Business Survey Committee, said in an interview that despite the sequential decline for the Services PMI, as well as it being its lowest reading in more than two years, that while there are some indicators pointing to contraction, that does not necessarily mean a serious recession is necessarily imminent.

“As the economic uncertainty unfolds here, there are too many strengths in the economy for [things] to go nosediving into a serious recession,” he said. “We don’t have high unemployment, we have low unemployment, and we still have growth month-over-month. And the only thing we are combatting seriously right now is inflation and the high prices associated with that.”

Addressing the report’s numbers collectively, Nieves noted that if they were viewed pre-pandemic, they would have been very well-received, with month-over-month growth remaining intact.

With inventories contracting in October, Nieves attributed part of that to things like increased turnover, burn rate, and products not being replenished as quickly as they are being consumed, based on feedback from ISM’s member respondents. Another factor he identified was that deliveries are slowing, with bottlenecks easing, coupled with some ongoing impediments, too, in that deliveries are down compared to the levels they were at four-to-six months ago.

“The supply chain is having some easing, in terms of bottlenecks, and there are some challenges, just not as bad as they were in the first half of the year,” he said. “We are seeing that across the board, and we are starting to see things normalize. Even though we are seeing these numbers come down across the board, they are largely in the mid-50s range. It is starting to normalize and not getting any deep-rooted cuts here.”

When looking at the services economy on a year-to-date basis, Nieves said the sector’s activity and output is in line with its most recent Semiannual Report, which was issued in May

“In the report, our respondents felt that things would go easy through 2022 and might see a little pullback, with no threat of recession,” he said. “Going into 2023, there was some uncertainty regarding a potential recession, with economists saying not so much in the first half of the year but possibly in the second half. I think that based on the fact that we have low unemployment, that is the key thing right now. The Fed is trying to stave off inflation by raising rates, which is impacting the biggest contributor to GDP, the real estate rental and leasing market. I think that once we find that peak or easing of inflation and bring the rates down, that is even going to stimulate the economy. We are hoping that happens sometime within the first half of next year so that we don’t propel ourselves into some recessionary period in the second half of the year.”  

About the Author

Jeff Berman, Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman




Source link

Leave a Reply