ISM reports ongoing growth for services-based economy in November

Economic growth in the services sector remained on a growth path for the sixth straight month, according to according to the Services ISM Report on Business, formerly the Non-Manufacturing Report on Business), which was issued today by the Institute for Supply Management (ISM).

The reading for the report’s key indicator—the Services PMI (formerly the Non-Manufacturing PMI)—was 55.9 (a reading of 50 or higher indicates growth is occurring), which was essentially flat with October’s 56.6, a 0.7% difference.

The November Services PMI is 1.7% above the 12-month average of 54.2, with the highest reading over that span being July’s 58.1 reading and the lowest being April’s 41.8. Services sector growth has seen gains in 128 of the last 130 months, with the exception of May and June of this year.

ISM reported that 14 of the 18 non-manufacturing sectors it tracks saw gains in November, including: Transportation & Warehousing; Management of Companies & Support Services; Health Care & Social Assistance; Utilities; Accommodation & Food Services; Construction; Retail Trade; Wholesale Trade; Professional, Scientific & Technical Services; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Mining; Public Administration; and Information. The four industries reporting contraction in November are: Arts, Entertainment & Recreation; Other Services; Real Estate, Rental & Leasing; and Educational Services.

The report’s equally weighted subindexes that directly factor into the NMI were mostly down, while still growing, in October, including:

  • business activity/production down 3.2%, to 58.0, growing, at a slower rate, for the sixth straight month, with 14 sectors reporting growth for the month;
  • new orders were down 1.6%, to 57.2, growing at a slower rate, for the sixth straight month, with 13 services sectors growing;
  • employment rose 1.4%, to 51.5, growing, at a faster rate, for the third straight month, which was preceded by a six-month stretch of declines; and
  • supplier deliveries, at 57.0 (a reading of 50 or higher indicates contraction), slowing at a faster rate for the 18th consecutive month

Other notable metrics in the report included: a 3.8% decline for inventories, to 49.3, contracting again after growing in October; a 2.2% increase in prices, to 66.1, increasing, at a faster rate, for the eighth consecutive month; and backlog of orders slipped 3.7%, to 50.7, growing, at a slower rate, for the sixth consecutive month.

Comments in the report submitted by ISM member respondents reflected concurrent themes of business concerns and ongoing concern over the ongoing COVID-19 pandemic, with positive case numbers heading up.

“Conflicting national, regional, and local guidelines/requirements for COVID-19 issues are becoming increasingly difficult to navigate, leading to a lot of just in time (JIT)-type purchases,” said an Accommodation & Food Services respondent. And an information services respondent pointed to tough economic conditions, with lost revenues from the COVID-19 crisis coming back but not completely.

Tony Nieves, Chair of the ISM’s Services Business Survey Committee, said in an interview that the second wave of the COVID-19 pandemic has increased the degree of uncertainty that the report’s respondents are feeling.

“It is not as widespread as the first shutdown, but certain industries have been decimated by this, notably the restaurant industry,” he said. “But other industries that are viewed as non-essential, like retail, are still operating and we still have a strong online presence, in terms of transactions and distribution going on with consumers right now. It is just a matter of things not quite at pre-pandemic levels by any stretch but still growing on a month-to-month basis, as it has been. We have had two months of contraction—April and May—and we could have arguably said that March was not indicative of what was going on out there, because half the month was very strong in the beginning and it carried over for the balance before the decline over the last week and a half of the month.”

Nieves said that one of the most important things relevant to the services sectors right now are getting another COVID-19 stimulus package, with Congress needing to move on that.

“I can see the pros and cons on both sides of the aisle, in terms of the arguments,” he said. “There have been some bad operating cities that are looking to benefit from this and some bad municipalities, but, at the end of the day, why cut off your nose to spite your face?”

And the introduction of a COVID-19 vaccine is another thing for the services sector to closely monitor, with the expectation it will be rolled out sooner rather than later and will bode well for the economy, according to Nieves.

“We are still years—and not months—away from a total recovery, but we are on a good path here,” he said.

When asked about the potential path of an economic recovery, once people have been vaccinated, Nieves said it is more likely to be a gradual recovery, as opposed to a V-shaped recovery, and it could be more of a W-shaped recovery.

“Besides restaurants, the other sector that has been decimated is Arts, Entertainment, and Recreation, with things like movie theaters and theme parks and theaters not likely to recover anytime soon, no matter how quickly this vaccine gets distributed,” he said.

Jobs impact: With employment growing for the third straight month in November, Nieves explained that part of that growth can be attributed to companies over-hiring a little bit, due to the absenteeism rate and also the fear of becoming COVID-19 positive.

“They can stay home and collect unemployment and come close [financially] to where they were, especially for some of the less-skilled menial-type service jobs,” he noted.

Looking ahead, Nieves said that there is typically a post-holiday season dip, or lull, in January, even though that did not occur in 2020, with the economy remaining strong until the onset of the pandemic in mid-March.

“I think there will be a pullback this year post holidays, as well as inventories being depleted, because everybody is buying stuff right now, in anticipation of the second wave of the virus and we could be sitting on an inventory stockpile into January until the Chinese New Year period,” he said.

About the Author

Jeff Berman, Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman