ISM: Services Sector Activity Expands as Prices Index Reaches Highest Reading Since 2008

Economic activity in the services sector grew in April for the 11th month in a row, according to the latest Services ISM Report on Business from the Institute for Supply Management.

“The Services PMI registered 62.7%, which is one percentage point lower than last month’s all-time high of 63.7%,” Anthony Nieves, CPSM, CPM, APP, CFPM, chair of the Institute for Supply Management services business survey committee, said. “The April reading indicates the 11th straight month of growth for the services sector, which has expanded for all but two of the last 135 months.

“The Supplier Deliveries Index registered 66.1%, up 5.1 percentage points from March’s reading of 61%. (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 figure of 76.8% is 2.8 percentage points higher than the March reading of 74%, indicating that prices increased in April and at a faster rate. This is the index’s highest reading since it reached 77.4% in July 2008.

“According to the Services PMI, 17 services industries reported growth. The composite index indicated growth for the 11th consecutive month after a two-month contraction in April and May 2020. There was slowing growth in the services sector in April; however, the rate of expansion is still strong. Respondents’ comments indicate that pent-up demand is continuing. Production-capacity constraints, material shortages, weather and challenges in logistics and human resources continue to affect deliveries, which has resulted in a reduction of inventories.”

As Nieves mentioned, of the 18 services industries included in the ISM’s report, 17 reported growth in April, including construction, mining and finance and insurance. Agriculture, forestry, fishing and hunting was the only services industry to report a decrease in April.

What Respondents Are Saying

  • “Restaurant capacity is increasing quickly as restrictions are removed. Consumers have pent-up demand, sales are increasing and the labor pool is tight. Supply chain is challenged at every level as businesses across the U.S. ramp up.” (Accommodation and Food Services)
  • “Delays in container deliveries are now impacting our business.” (Agriculture, Forestry, Fishing and Hunting)
  • “Consistent with the past year, labor continues to be the biggest issue we are facing. Finding and retaining labor — skilled and unskilled — is highly challenging and frustrating. As the challenges continue, we are not accepting all the work that we could if we had the labor.” (Construction)
  • “Higher volume of activity in anticipation of a reopening of the campus in the fall of 2021.” (Educational Services)
  • “Conditions are good for the market/industry. Continuing to trend under budget for operating expenses. Outlook is positive for the second quarter of 2021.” (Finance and Insurance)
  • “Elective surgeries coming back to pre-COVID-19 rates. Patient census continues to drop, as it does this time of year.” (Healthcare and Social Assistance)
  • “Overall, there is pricing pressure for goods and services in the market.” (Information)
  • “Supply has been dwarfed by demand [and] ocean-transport logistics imbalances with ships and containers. North America parcel carriers swamped with volume-processing constraints, and highway carriers can’t supply drivers, regardless of choked original equipment manufacturer [OEM] truck orders. Rail intermodal is only competitive among two dozen or so origins, to about as many destinations.” (Professional, Scientific and Technical Services)
  • “Business is generally upbeat. There is pent-up demand and resources, especially people. The pandemic, while not over, is subsiding in most places with the vaccines. Many people who were previously unable to think about relocating for jobs are now doing so. Other areas of the economy are opening up. Many medical treatments that were not critical and were put off are now being administered.” (Public Administration)
  • “Business levels are quite strong as we head into the spring construction season.” (Real Estate, Rental and Leasing)
  • “Business optimism is high. Orders are picking up and there is a strong demand for capital investments.” (Utilities)
  • “Business is very robust, but logistics and supply cannot keep up.” (Wholesale Trade)

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