ISM Services Report: Growth Continues in December
The Institute of Supply Management (ISM) has now released the December Services Purchasing Managers' Index (PMI). The headline Composite Index is at 62.0 percent, down 7.1 from 69.1 last month. Today's number came in below the Investing.com forecast of 66.9 percent.
Here is the report summary:
(Tempe, Arizona) — Economic activity in the services sector grew in December for the 19th month in a row — with the Services PMI® exceeding 60 percent for the 10th consecutive month — say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business®.
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 62 percent, 7.1 percentage points below November’s all-time high reading of 69.1 percent. The Business Activity Index registered 67.6 percent, a decrease of 7 percentage points compared to the reading of 74.6 percent in November, and the New Orders Index registered 61.5 percent, 8.2 percentage points lower than the all-time high reading of 69.7 percent reported in November.
“The Supplier Deliveries Index registered 63.9 percent, 11.8 percentage points lower than the 75.7 percent that was reported in November. (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 reached its third-highest reading ever at 82.5 percent, up 0.2 percentage point from the November figure of 82.3 percent. Services businesses continue to struggle replenishing inventories, as the Inventories Index (46.7 percent, down 1.5 percentage points from November’s reading of 48.2 percent) and the Inventory Sentiment Index (registering 38.3 percent, up 1.9 percentage points from November) stayed in contraction or ‘too low’ territory in December.”
Nieves continues, “According to the Services PMI®, 16 services industries reported growth. The composite index indicated growth for the 19th consecutive month after a two-month contraction in April and May 2020. Although there was a pullback for most of the indexes in December, the rate of growth remains strong for the services sector, which has expanded for all but two of the last 143 months. Business Survey Committee respondents have indicated that they continue to struggle with inflation, supply chain disruptions, capacity constraints, logistical challenges and shortages of labor and materials.” [Source]
Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows the Non-Manufacturing Composite.
The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 67.6 percent is down 7.0 from a seasonally adjusted 74.6 the previous month.
For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualize the short-term trends.
Theoretically, this indicator should become more useful as the time frame of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains our intention to keep this series on the radar.
Here is a table showing the trend in the underlying components.
We will publish our next ISM Non-Manufacturing report on February 3.