Services sector expands again
Economic activity in the services sector expanded in December for the 12th consecutive month as the Services PMI registered 50.6%, say the nation’s purchasing and supply executives in the latest Services ISM Report On Business. The sector has grown in 42 of the last 43 months, with the lone contraction in December 2022.
The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management (ISM) Services Business Survey Committee: “In December, the Services PMI registered 50.6%, 2.1 percentage points lower than November’s reading of 52.7 percent. The composite index indicated growth in December for the 12th consecutive month after a reading of 49.2% in December 2022, which was the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 56.6%, a 1.5-percentage point increase compared to the reading of 55.1 percent in November. The New Orders Index expanded in December for the 12th consecutive month after contracting in December 2022 for the first time since May 2020; the figure of 52.8 percent is 2.7 percentage points lower than the November reading of 55.5%.
“The Supplier Deliveries Index registered 49.5%, 0.1 percentage point below the 49.6% recorded in November. The index remained in contraction territory for the third consecutive month, indicating that supplier delivery performance was ‘faster’ in contrast to the ‘slowing’ status in September. In the last 11 months, the average reading of 48.3% (with a low of 45.8 in March) reflects the fastest supplier delivery performance since June 2009, when the index registered 46%. (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.)
“The Prices Index registered 57.4% in December, a 0.9-percentage point decrease from the November reading of 58.3%. The Inventories Index contracted in December, registering 49.6%, a decrease of 5.8 percentage points from November’s figure of 55.4 percent. The Inventory Sentiment Index (55.3%, down 6.9 percentage points from November’s reading of 62.2%) expanded for the eighth consecutive month. The Backlog of Orders Index contracted in December for the second consecutive month, registering 49.4%, a 0.3-percentage point increase compared to the November reading of 49.1%.
“Nine industries reported growth in December. The Services PMI, by being above 50 percent for the 12th month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector, though at a slower rate in December.”
Nieves continues, “The services sector had a pullback in the rate of growth in December, attributed to the decrease in the rate of growth for new orders and contraction in employment. Respondents’ comments vary by both company and industry. There are concerns related to economic uncertainty, geopolitical events and labor constraints.”
INDUSTRY PERFORMANCE
The nine services industries reporting growth in December — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Health Care & Social Assistance; Transportation & Warehousing; Other Services; Utilities; Retail Trade; Professional, Scientific & Technical Services; and Public Administration. The nine industries reporting a decrease in the month of December — listed in order — are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Wholesale Trade; Mining; Information; Educational Services; Management of Companies & Support Services; Construction; and Finance & Insurance.
WHAT RESPONDENTS ARE SAYING
• “Pricing has become more favorable, in increments. However, beef prices are still high. Petroleum continues to fluctuate. Services has come down slightly, but hourly rates are still higher than pre-pandemic (levels).” [Accommodation & Food Services]
• “Congestion at the Panama Canal is expected to continue for the next several months. The effect of this is rerouting marine cargoes at the expense of cost and schedule.” [Construction]
• “Business conditions are generally good, except for a short supply of major electrical components.” [Educational Services]
• “Revenues remain strong but labor is still constrained, and suppliers are floating price increases beginning January 1, which will likely further reduce already low operating margins. Supply chains appear to be operating closer to pre-pandemic norms and remain mostly stable. Our primary goal for calendar year 2024 is expense reduction across the board, including for supplies and services as well as through eliminating non-value-added pursuits.” [Health Care & Social Assistance]
• “If interest rates go down, investment borrowing will increase, as will orders for services.” [Information]
• “Production and sales are up, and prices are down.” [Mining]
• “Hiring of direct employees, consultants and contract workers remains flat across most industries as the holiday season is in full swing and economic concerns persist. Companies are taking a wait-and-see approach to increasing labor costs as they continue to try to do more work with less people.” [Professional, Scientific & Technical Services]
• “Final push for the holidays. The supply chain and sales are strong — pricing stable.” [Retail Trade]
• “We have seen a typical slow seasonal change in business. This is not unexpected and remains at a higher level than in the previous two years.” [Transportation & Warehousing]
• “There is more stability in the supply chain for the first time since early 2020. Overall level of business activity is still relatively high.” [Utilities]
• “Business is still robust in our area, despite the normal holiday lull. We should see business resume after the first of the year if good weather prevails. Mortgage rates are continuing to fall, which is aiding in affordability. I think the first quarter will yield good demand.” [Wholesale Trade]
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.
