ISM: Services Sector Economic Activity Grows in August Despite Decline in Supplier Deliveries

Economic activity in the services sector grew in August for the third month in a row, according to the Services ISM Report On Business from the Institute for Supply Management.

“The Services PMI (formerly the Non-Manufacturing NMI) registered 56.9 percent, 1.2 percentage points lower than the July reading of 58.1 percent.This reading represents growth in the services sector for the third straight month and the 125th time in the last 127 months, with the exception of April’s and May’s contraction,” Anthony Nieves, CPSM, CPM, APP, CFPM, chair of the Institute for Supply Management services business survey committee, said. “The Supplier Deliveries Index registered 60.5 percent, up 5.3 percentage points from July’s reading of 55.2 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 higher readings for supplier deliveries in the four months prior to July were primarily a product of supply problems related to the coronavirus (COVID-19) pandemic. Supplier deliveries are now more closely correlating to current supply and demand.

“The Prices Index figure of 64.2 percent is 6.6 percentage points higher than the July reading of 57.6 percent, indicating that prices increased in August at a faster rate. According to the Services PMI, 15 services industries reported growth. The composite index indicated growth for the third consecutive month after contraction in April and May. The sector’s previous period of contraction was in November and December 2009, with Services PMI readings of 49.5 percent and 49.7 percent, respectively. Respondents’ comments are mostly optimistic and industry specific about business conditions and the economy as businesses are starting to reopen. Industries that have not reopened remain concerned about the ongoing uncertainty. There is a challenge with capacity and logistics due to the pandemic and the impact on deliveries and order fulfillment.”

The 15 services industries that reported growth in August included transportation and warehousing; financing and insurance; and real estate, rental and leasing. The three industries that reported a decrease in August were mining, information and other services.

What Respondents Are Saying

  • “Our business activity is now thriving again after modifications to our operations. While supply disruptions remain common, very critical items are more stable than in previous months. Tariff threats have caused more concern than in previous months due to actions in aluminum and the rapid rise in lumber costs for construction expansions.” (Accommodation and Food Services)
  • “Overall, we are seeing improvement in the level of activity in the short term. Backlog of orders is inconsistent.” (Construction)
  • “Continuing pandemic uncertainties are challenging abilities to prepare for fall semester activities, resumption of in-person instruction and the research enterprise. Recent decision to provide all undergraduate instruction online has shifted priorities significantly, including reduced need for testing and increased need for remote teaching infrastructure.” (Educational Services)
  • “Revenue challenges for our customers still remain a primary challenge.” (Finance and Insurance)
  • “Continuing to build our ancillary clinic volume as well as elective surgical cases since ceasing these services from mid-March through May 1.” (Healthcare and Social Assistance)
  • “Clear signs of gearing up manufacturing and distribution for an extraordinary e-commerce Christmas. Brick-and-mortar likely closed to crowds. Also hearing the other shoe is about to drop, probably in first quarter of 2021, on U.S.-China trade. ‘Get out of China now’ is resonating.” (Information)
  • “We are significantly down from the pre-COVID-19 level. While month-over-month business activity is picking up, the pace is very slow and very slight.” (Wholesale Trade)
  • “Increase in service- and work-order requests are signs of economic improvement as companies reopen and begin to ramp up employment activity.” (Professional, Scientific and Technical Services)
  • “The coronavirus continues to be a challenge for the business as we pivot and adapt to these new conditions. Sales have been affected in the retail space with less foot traffic in our brick-and-mortar stores, while e-commerce sales have increased significantly. We are starting to see sales level out in this new environment from the pandemic.” (Retail Trade)
  • “Business recovery continues as the country reopens.” (Real Estate, Rental and Leasing)

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