ISM: Services Sector Activity Grows in March as PMI Reaches All-Time High

Economic activity in the services sector grew in March for the 10th month in a row, according to the latest Services ISM Report on Business from the Institute for Supply Management.

“The Services PMI registered an all-time high of 63.7%, 8.4 percentage points higher than the February reading of 55.3%. The previous high was in October 2018, when the Services PMI registered 60.9%. The March reading indicates the 10th straight month of growth for the services sector, which has expanded for all but two of the last 134 months,” Anthony Nieves, CPSM, CPM, APP, CFPM, chair of the Institute for Supply Management services business survey committee, said. “For further historical context, the Services PMI debuted as the Non-Manufacturing NMI in 2008, although subindex data was collected for years in advance. In August 1997, the four subindexes — Business Activity, New Orders, Employment and Supplier Deliveries — that make up the Services PMI would have calculated a composite-index reading of 62%.

“The Supplier Deliveries Index registered 61%, up 0.2 percentage point from February’s reading of 60.8%. (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 74% is 2.2 percentage points higher than the February reading of 71.8%, indicating that prices increased in March and at a faster rate. According to the Services PMI, all 18 services industries reported growth. The composite index indicated growth for the 10th consecutive month after a two-month contraction in April and May. There was a substantial increase in the rate of growth in the services sector in March. Respondents’ comments indicate that the lifting of coronavirus (COVID-19) pandemic-related restrictions has released pent-up demand for many of their respective companies’ services. Production-capacity constraints, material shortages, weather and challenges in logistics and human resources continue to cause supply chain disruption.”

All of the 18 services industries reported growth in March, including finance and insurance, wholesale trade and construction.

What Respondents Are Saying

  • “Logistics delays and uncertainty are creating significant problems with suppliers and inventories. Also, [there are] cost concerns regarding inflated pricing due to logistics and shortages.” (Accommodation and Food Services)
  • “Our four Southern California locations are finally open after being closed for 12 months. We are currently experiencing severe supply chain and distribution disruptions related to multiple factors. Reopening of the California and New York movie theater markets [is] creating a surge in demand; also, manufacturers and a distributor partner are dealing with labor shortages.” (Arts, Entertainment and Recreation)
  • “Residential new home construction demand continues to outpace supply. Building material delays, discontinuations and shortages are beginning to develop. Shipping delays at the L.A. and Long Beach ports have contributed to longer lead times. Cold weather in Texas has hurt several component manufacturers for building materials. We have encountered the ‘perfect storm’ for building material shortages and price increases.” (Construction)
  • “There is optimism in higher education that fall 2021 will be near normal, with vaccinated students, employees and staff returning to their roles on campus.” (Educational Services)
  • “Local and national outlook remains positive, despite return-to-work concerns [and] work-from-home-related issues/purchases.” (Finance and Insurance)
  • “Vaccination rates are rising and coronavirus [COVID-19] infections are falling in the region, leading to optimistic outlooks and forecasts for increased business activity. Patient census numbers are trending upward, mainly due to a better ratio of patients seeking elective procedures versus COVID-19 hospitalizations. However, revenues are still soft, indicating that a full rebound in business activity has not yet been realized.” (Health Care and Social Assistance)
  • “Resin/oil price increases are beginning to filter down to products that we procure. In addition to price increases, we are also seeing longer lead times as supply chains pivot to find cheaper supply options.” (Information)
  • “Lack of chemicals and the recent freeze in Texas has delayed some orders and is creating a micro [price] increases for certain products. Suppliers are using the short-term shortage to their advantage to raise rates.” (Mining)
  • “Higher levels of demand related to additional business reopening and increased activity related to vaccination distribution.” (Professional, Scientific and Technical Services)
  • “Business is picking up as mandated restrictions seem to be easing and spring is right around the corner.” (Real Estate, Rental and Leasing)
  • “Outlook remains cautiously optimistic for the second half of the year as businesses continue to open up and projects come online.” (Retail Trade)
  • “Overall, there are still delays in import shipments of goods, though [the situation has] slightly improved. The market forecast on ocean shipments and logistics is still the same for next quarter; improvements might be seen in Q3. COVID-19 issues continue to impact demand and supply across the globe, and the new stimulus aid is expected to help the economy and lead to an increase in retail spending over the next few months.” (Wholesale Trade)

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