ISM: Services Sector Activity Expands in December as Prices Increase at a Slower Rate

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

“The Services PMI registered 57.2 percent, 1.3 percentage points higher than the November reading of 55.9 percent. This reading represents a seventh straight month of growth for the services sector, which has expanded for all but two of the last 131 months,” Anthony Nieves, CPSM, CPM, APP, CFPM, chair of the Institute for Supply Management services business survey committee, said. “The Supplier Deliveries Index registered 62.8 percent, up 5.8 percentage points from November’s reading of 57 percent. (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 figure of 64.8 percent is 1.3 percentage points lower than the November reading of 66.1 percent, indicating that prices increased in December, and at a slower rate. According to the Services PMI, 14 services industries reported growth. The composite index indicated growth for the seventh consecutive month after a two-month contraction in April and May. In December, a slight uptick in the rate of services sector growth continued. Respondents’ comments are mixed about business conditions and the economy. Various local- and state-level COVID-19 shutdowns continue to negatively impact companies and industries. Applicable human resources, production capacity and logistics have been more constrained than during the previous month. Most respondents are cautiously optimistic about business conditions with the recent approval and impending distribution of vaccines.”

Finance and insurance, construction, and mining were among the 14 services industries that reported growth in December. The four industries that reported contraction in December were arts, entertainment and recreation; accommodation and food services; other services; and real estate, rental and leasing.

What Respondents Are Saying

  • “Starting to see demand weakening as states go back to shut down. Will look to see business resume in late first quarter as vaccine distribution takes place.” (Accommodation and Food Services)
  • “Lack of labor continues to be a significant drag on the business. We have plenty of work but are now considering rejecting some orders due to shrinking capacity.” (Construction)
  • “Continued local and state shutdowns negatively impacting a variety of operations. Notably, shipping delays are beginning to affect operations as [parcel companies] all struggle under the strain of holiday shipping demand. Construction and services continue to also be challenged as COVID-19 infections become more pervasive, with workers calling out to quarantine, etc.” (Educational Services)
  • “COVID-19 continues to be an impediment to normalized business operations, and the pandemic is not abating — only worsening as [we] get into the winter months. Stocks of personal protective equipment [PPE] are adequate but not sufficient for most categories, with the exception of nitrile exam gloves, which are in extremely short supply internationally. Our hospital system achieved 94 percent capacity in our intensive care units and continued to hover around that number with new admissions, fatalities and discharges on a daily basis. This situation continues to impede normal revenue-generating surgical volumes.” (Healthcare and Social Assistance)
  • “Deliveries as a whole are slowing down considerably. Between COVID-19, the holidays and inclement weather of late, the remainder of [2020] stands to be very challenging regarding maintaining adequate materials for operations.” (Professional, Scientific and Technical Services)
  • “Business quite good, all things considered, although below the original 2020 planned forecast.” (Real Estate, Rental and Leasing)
  • “Business conditions are improving with increased volume, but [growth has] slowed slightly due to COVID-19 shutdowns in some states.” (Transportation and Warehousing)
  • “The general business conditions are steady/stable. Expecting a very slight slowdown to end the year, with a rebound in mid-January.” (Utilities)
  • “We have seen a growing number of product shortages and increased lead times during the last quarter.” (Wholesale Trade)

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