ISM Services Down Again in October

The Institute of Supply Management (ISM) has now released the October Services Purchasing Managers' Index (PMI). The headline Composite Index is at 54.4 percent and is down 2.3 from 56.7 last month. Today's number came in below the forecast of 55.5 percent.

Here is the report summary:

(Tempe, Arizona) — Economic activity in the services sector grew in October for the 29th month in a row — with the Services PMI® registering 54.4 percent — 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 October, the Services PMI® registered 54.4 percent, 2.3 percentage points lower than September’s reading of 56.7 percent. This is the lowest reading since May 2020, when the index registered 45.2 percent. The Business Activity Index registered 55.7 percent, a decrease of 3.4 percentage points compared to the reading of 59.1 percent in September. The New Orders Index figure of 56.5 percent is 4.1 percentage points lower than the September reading of 60.6 percent.

“The Supplier Deliveries Index registered 56.2 percent, 2.3 percentage points higher than the 53.9 percent reported in September. (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.)

“After five straight months of decreases, the Prices Index was up 2 percentage points in October, to 70.7 percent. Services businesses still continue to struggle to replenish their stocks, as the Inventories Index contracted for the fifth consecutive month; the reading of 47.2 percent is up 3.1 percentage points from September’s figure of 44.1 percent. The Inventory Sentiment Index (46.4 percent, down 0.8 percentage point from September’s reading of 47.2 percent) contracted for the third month in a row.

“According to the Services PMI®, 16 industries reported growth. The composite index indicated growth for the 29th consecutive month after a two-month contraction in April and May 2020. Growth continues at a slower rate for the services sector, which has expanded for all but two of the last 153 months. The sector had a pullback in growth for the second consecutive month in October due to decreases in business activity, new orders and employment.”

Nieves continues, “Supplier deliveries continued to slow, at a faster rate in October. Based on comments from Business Survey Committee respondents, growth rates and business levels have cooled. There are still challenges in hiring qualified workers, and due to uncertainty regarding economic conditions, some companies are holding off on backfilling open positions. Supply chain and logistical issues persist but are not as encumbering as they were earlier in the year.” [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 55.7 percent is down 3.4 from a seasonally adjusted 59.1 the previous month.

ISM Services

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.

Here is a link to our coverage of the latest ISM Manufacturing report.

We will publish our next ISM Non-Manufacturing report on November 3.

Read more updates by Jill Mislinski