ISM: Economic Activity in Services Sector Grows in June but Eases from May’s All-Time High

Economic activity in the services sector grew in June for the 13th month in a row, according to the June 2021 Services ISM Report on Business from the Institute for Supply Management.

“The Services PMI registered 60.1%, which is 3.9 percentage points lower than May’s all-time high reading of 64%. The June reading indicates the 13th straight month of growth for the services sector, which has expanded for all but two of the last 137 months,” Anthony Nieves, CPSM, CPM, APP, CFPM, chair of the Institute for Supply Management’s services business survey committee, said. “The Supplier Deliveries Index registered 68.5%, down 1.9 percentage points from May’s reading of 70.4%. (Supplier Deliveries is the only ISM Report on Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Prices Index registered 79.5%, 1.1 percentage points lower than the May reading of 80.6%, indicating that prices increased in June and at a slightly slower rate.

“According to the Services PMI, 16 services industries reported growth. The composite index indicated growth for the 13th consecutive month after a two-month contraction in April and May 2020. The rate of expansion in the services sector remains strong despite the slight pullback in the rate of growth from the previous month’s all-time high. Challenges with materials shortages, inflation, logistics and employment resources continue to be an impediment to business conditions.

Transportation and warehousing, finance and insurance and construction were among the 16 services industries that reported growth in June. The two industries that reported a decrease in June were real estate, rental and leasing and agriculture, forestry, fishing and hunting.

What Respondents Are Saying

  • “Our restaurants are quickly — maybe too quickly — returning to 2019 sales levels. Strong consumer demand for dining out is clearly evident as COVID-19 restrictions ease, but the challenges are supply chain outages, logistics delays and employee and management staffing constraints. Some locations cannot open for business or (have) limited hours, as we cannot staff the restaurant to meet consumer demand.” (Accommodation and Food Services)
  • “Severe supply chain disruptions and inflation are continuing in the marketplace, in all sectors.” (Arts, Entertainment and Recreation)
  • “COVID-19 continues to cause troubles for all of our deliveries, as well as short supply [of] a lot of materials. (Shortages of) lumber, copper and steel continue, which is driving up pricing and lead times.” (Construction)
  • “The declining positive test rates for COVID-19 [are] already having a significant impact, as virtually all aspects of our operations are picking up rapidly. The summer is normally the slow period, as limited teaching is taking place, but this year, preparations for the fall semester are already underway.” (Educational Services)
  • “New business is actively trending up locally, nationally and internationally.” (Finance and Insurance)
  • “We continue to see a high (patient) census as COVID-19 restrictions are eased, but the volumes are not pandemic related. There are more patients now because they wouldn’t or couldn’t get treatment because of restrictions on (non-COVID-19) care or personal cautiousness.” (Healthcare and Social Assistance)
  • “Employees globally are returning to the office where possible. We expect to have most employees in the office starting in September.” (Information)
  • “Business conditions continue to rebound; however, like everywhere, the challenges in the supply chain are numerous. We continue to see cost increases, delayed shipments, pushed-out lead times and no clarity as to when predictive balance returns to this market.” (Retail Trade)
  • “Labor market remains tight and wages have risen at an unprecedented rate. We are expecting a long-term effect on pricing of services.” (Transportation and Warehousing)
  • “Overall business activity in the month has been strong. We are seeing increased orders and slight improvements in backlogs. The primary headwinds this month continue to be very expensive ocean freight rates, increasing business costs and increasing raw materials costs. The top line is not outrunning expenses.” (Wholesale Trade)
  • “Starting to see a lot of commodity price increases for chemicals, acidizing and cementing. This is driven by product cost increases stemming from low production from plants.” (Mining)

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