–ISM’s Nieves: Majority of Firms Remain Positive About Business Conditions; Some Concerned About Potential Headwinds
–Nieves: Potential Headwinds Include Geopolitical Risks, Labor Strikes, High Fuel and Food Costs
–Nieves: Employment Conditions Remain a Mixed Bag; Some Industries Have Trouble Filling Vacancies
By Max Sato
(MaceNews) – Business activity in the U.S. services sector was in positive territory for the ninth straight month in September but the key index slipped from August, as largely expected, due to slower growth in new orders and employment, according to the latest survey by the Institute for Supply Management released Wednesday.
The main index, which shows the directional change of economic activity, fell 0.9 percentage point to 53.6, but stayed above the break-even point of 50.0. Previously, the index rose 1.8 points to a six-month high of 54.5 in August and fell 1.2 points to 52.7 in July. It had surged 6.0 points to 55.2 in January to recover much of the 6.3-point plunge to 49.2 in December, which was the first contraction since May 2020, when it registered 45.4.
The index came in just above than the median economist forecast of 53.5. It is well above the recent low of 41.7 hit in April 2020 and 40.1 in March 2009, which is the lowest since the inception of the Services PMI in 2008. But it also remains well below the record high of 68.4 reached in November 2021.
“There has been a slight pullback in the rate of growth for the services sector, which is attributed to slower rates of growth in the new orders and employment indexes,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “The majority of respondents remain positive about business conditions; moreover, some respondents indicated concern about potential headwinds.”
Nieves told reporters that potential headwinds include geopolitical issues in Ukraine, Russia and Asia, labor strikes in the U.S. and high costs for fuels and food, but he also noted that firms are not pointing to anything specific and those potential headwinds are not industry-specific.
Describing the recent ISM survey results, Nieves said, “We are seeing more of an incremental growth pattern.”
Employment conditions remain a mixed bag as some industries, particularly retailers and food service providers, still have trouble finding workers, he said. The real-estate industry has been hit by higher borrowing costs, and thus it is finding it hard to recruit people, he added.
“The fourth quarter is looking better than forecast, which is good because the third quarter of 2023 was below plan,” a company from the professional, scientific and technical services category, told the ISM. “Our customers are cautiously optimistic for a solid domestic performance, despite troubles in select foreign markets.”
“Business is ramping up in preparation for the holiday season,” a firm in the retail trade industry. “Our supply chain is strong.”
Last month Nieves said U.S. service providers believed the second half of 2023 had started to see some improvements over the first half, and that the sector should see a further pickup in the coming months going into the year-end holiday season after typically slower summer months.
ISM data released Monday showed U.S. manufacturing activity was in contraction territory for the 11th straight month in September but the pace of overall slowdown continued to ease, taking the main index to a 10-month high of 49.0, thanks to higher new orders and production as well as a surprise pickup in employment.
Of the four sub-indexes that directly factor into the services PMI, growth in business activity posted a solid gain after recording a modest rise in August and a slip in July, the pace of increase in new orders decelerated sharply, employment conditions eased but indicated continued growth overall, and supply deliveries slowed.
The business activity index rose 1.5 percentage points to 58.8 in September after edging up 0.2 point to 57.3 in August, slipping 2.1 points to 57.1 in July and jumping 7.7 points to a five-month high of 59.2 in June to recover most of its declines seen in the previous four months. The readings of 51.5 in May and 52.0 in April were three-year lows.
The new orders index slumped 5.7 points to a nine-month low of 51.8 after rising 2.5 points to a six-month high of 57.5 in August, edging down 0.5 point to 55.0 in July from 55.5 in June, when it rose 2.6 points. The index indicated expansion for the ninth consecutive month after contracting in December for the first time since May 2020 (41.3).
The employment index eased 1.3 points to 53.4 after jumping 4.0 points in August to 54.7, the highest since 56.1 in November 2021, and falling 2.4 points to 50.7 in July and rebounding 3.9 points to 53.1 in June and slipping below the key 50 line for the first time in five months in May to 49.2, the lowest since 49.2 recorded in October 2022.
The supplier deliveries index — the only ISM index that is inversed — rose 1.9 points to a 10-month high of 50.4 in September after rising 0.4 point to 48.5 in August. The index is in expansion (or “slowing”) territory for the first time since November 2022, when it registered 53.8, but the average reading of 48.1 in the last seven months (with a low of 45.8 in March) reflects the fastest supplier delivery performance since June 2009 (46.0). A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
In other details, the prices index was unchanged at 58.9 in September after rising 2.1 points to a four-month high 58.9 in August, gaining 2.7 points to 56.8 in July and losing 2.1 points to 54.1 in June, which was the lowest since 50.4 in March 2020. The index remains well below its record high of 83.2 hit in April and February 2022.
The inventories index fell 3.5 points to 54.2 after rebounding 7.3 points to 57.7 in August, dropping 5.5 points to 50.4 in July and falling 2.4 points to 55.9 in June. It indicates expansion for the fifth straight month.
The index for backlog orders rose 6.8 points to 48.6 in September after slumping 10.3 points to 41.8 in August and rising 8.2 points to 52.1 in July to be in expansion territory for the first time in five months in light of improving supply chains. It rose 3.0 points to 43.9 in June and fell 8.8 points to 40.9 in May, which was the lowest reading since 40.0 in May 2009.
The new export orders index is in growth territory for the six straight month, up 1.6 points at 63.7, after rising 1.0 point to 62.1 in August, slipping 0.4 point to 61.1 in July and rebounding 2.5 points to 61.5 in June.