–ISM’s Nieves: Rising Inflation Hurting Demand in Retail Trade
–ISM: Supply Chain Constraints Keeping Firms from Replenishing Inventories
–ISM: Employment in Contraction Mainly Due to Limited Labor Pool
By Max Sato
The main index, which shows the directional change of economic activity, indicated the sector continued growing for the 25th straight month, staying above the key 50 line, but it fell a slight 0.6 percentage point to 55.3 in June, the lowest since May 20220, when it rose to 45.2 from a record low 41.5 hit the previous month. It followed 1.2-points drops in both May and April. The index remained well below the record high of 68.4 in November 2021.
“Growth continues — albeit slower — for the services sector, which has expanded for all but two of the last 149 months,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “The slight slowdown in services sector growth was due to a decline in new orders and employment.”
“Logistical challenges, a restricted labor pool, material shortages, inflation, the coronavirus pandemic and the war in Ukraine continue to negatively impact the services sector,” he said.
Services providers continue struggling to replenish inventories due to supply delays. The inventories index contracted for the first time since January 2022, falling 3.5 points to 47.5 from 51 in May. The inventory sentiment index stood at 46.2 in June, up 1.7 points from May’s reading of 44.5, contracting for the fourth consecutive month, indicating that inventories are in “too low” territory and insufficient for current business requirements.
The new orders index fell 2.0 percentage points to 55.6 in June after rising 3.0 points to 57.6 in May and falling 5.5 points to 54.6 percent in April. The backlog orders index grew 8.5 points to 60.5 in June after falling 7.4 points to 52.0 in May as supply constraints linger.
“There has been a decrease in demand” but all 18 industries still reported growth in June, Nieves told reporters. Rising inflation dented demand in the retail sector, he noted.
“Consumers are shifting purchases away from our discretionary products to essentials,” a firm in retail trade told ISM. “Inflation is definitely taking a bite from our sales, and mall traffic is far below the norm, potentially due to inflation.”
The real-estate, rental and leasing sector, a large contributor to services output in the GDP, has also seen demand pull back slightly because there is not enough inventory online, Nieves said.
The employment index dipped 2.8 points to 47.5, falling back into contraction, after rising to 50.2 in May from 49.5 in April, mostly due to restricted labor pool, while layoffs were limited to some firms.
Some easing in price pressures was observed but inflation remained elevated. The prices index fell for the second consecutive month in June, down 2 points at 80.1, after hitting a record high of 84.6 in April, but remained at a high level compared to 78.8 seen a year earlier.
The supplier deliveries index rose 0.6 point to 61.9 percent in June after easing 3.8 points to 61.3 in May. A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
“The shutdowns in China due to the zero-Covid policy have adversely impacted our supply chain,” a firm in the health care and social assistance sector said.
“Demand has softened across consumer product lines, channels and brands over the last year, to levels below those forecast earlier this year,” an information service provider said. “Adjusting all outlooks down for the rest of year. The (Shanghai) omicron slowdown had an impact, but activity is slowly coming back.”