–ISM’s Nieves: Jobs Remain Mixed Bag; Some Firms Struggling to Secure Workers
–Nieves: New Orders Expected to Show ‘Decent Numbers’ in January-March Quarter
–Nieves: Inventory Buildup Due to Holiday and Flu Seasons
By Max Sato
(MaceNews) – Business activity in the U.S. services sector was in positive territory for the 11th straight month in November and a bit better than expected, regaining some momentum at the start of the holiday season, thanks to slight employment growth, after slowing the previous month, according to the latest survey by the Institute for Supply Management (ISM) released Tuesday.
The main index, which shows the directional change of economic activity, rose 0.9 percentage point to 52.7 in November after falling 1.8 points to a five-month low of 51.8 in October. Previously, the index dipped 0.9 point to 53.6 in September, 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 above the median economist forecast of 52.4 but just under the year’s average of 52.8. 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.
ISM data released Friday showed U.S. manufacturing activity was in contraction territory for the 13th straight month in November, with a key index unchanged from October, as demand remains sluggish, prompting firms to lower production and reduce headcount.
“The services sector had a slight uptick in growth in November, attributed to the increase in business activity and slight employment growth,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “There is continuing concern about inflation, interest rates and geopolitical events.” The war in the Middle East has hurt export orders for some industries including the professional, scientific and technical services category, he said.
“Rising labor costs and labor constraints remain employment-related challenges,” Nieve said.
He told reporters that the labor market conditions remain a “mixed bag” and that they are not getting worse. The ISM employment index is moving “sideways” and is consistent with other economic data including the Employment Situation released by the Bureau of Labor Statistics, he said.
Some firms are not replacing positions from attrition while others, such as construction firms and in-person service providers, are still finding it hard to find workers, Nieves said. The health care industry reported that employment conditions have stabilized, he said.
New orders grew at the same pace as in the previous month, and are expected to show “decent numbers” in the January-March quarter based on “what is reflected in the pipeline and what the respondents are telling us,” Nieves predicted.
Inventories rebounded in November after contracting in October as part of a seasonal buildup for the holiday season and due to higher purchases of personal protective equipment at the start of the flu season, Nieves explained. Among the industries that built up inventories are: public administration, real estate, rental and leasing and retail trade.
Overall, the services sector appears to be going in to a better holiday season compared to last year, when the ISM’s main index slumped to 49.2 in December, Nieves said. The index quickly returned to positive territory above 50 in January 2023.
The ISM’s semi-annual survey on both manufacturers and service providers, due on Dec. 15, will show sales projections and capital investment plans by member firms for next year.
“Capital investment remains constrained; however, optimism has returned for a turnaround in calendar year 2024,” a firm from the health care and social assistance industry told the ISM.
A company in the professional, scientific and technical services industry said fourth-quarter revenues are lower than projected. “Seeing negative revenues trend into the first quarter of the new year,” it said. “We remain positive yet concerned about 2024.”
Of the four sub-indexes that directly factor into the services PMI, growth in business activity picked up modestly after slowing sharply in the previous month, new orders grew at the same pace as in October, employment conditions improved slightly, and supply deliveries were faster for the second straight month due to lower backlog orders and improved supply chains.
The business activity index rose 1.0 percentage point 55.1 in November after plunging 4.7 points to a five-month low of 54.1 in October, rising 1.5 points to 58.8 in September, 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 was unchanged at 55.5 in November after rising 3.7 points to 55.5 in October, slumping 5.7 points to a nine-month low of 51.8 in September, 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 11th consecutive month after contracting in December 2022 for the first time since May 2020 (41.3).
The employment index rose 0.5 point to 50.7 in November after falling 3.2 points to 50.2 in October, easing 1.3 points to 53.4 in September, 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. It slipped below the key 50 line for the first time in five months in May 2023 to 49.2, the lowest since 49.2 recorded in October 2022.
The supplier deliveries index — the only ISM index that is inversed — rose 2.1 points to 49.6 in November after dipping 2.9 points to 47.5 in October, rising 1.9 points to a 10-month high of 50.4 in September (the first time that it had popped above 50 since November 2022) and edging up 0.4 point to 48.5 in August. The index remained in contraction territory for the second consecutive month, indicating that supplier delivery performance was ‘faster’ in contrast to the ‘slowing’ status in September. In the last 10 months, the average reading of 48.1 (with a low of 45.8 in March) reflects the fastest supplier delivery performance since June 2009, when the index stood at 46. A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
In other details, the inventories index rebounded 5.9 points to 55.4 in November after slumping 4.7 points to 49.5 in October (the first contraction in six months), falling 3.5 points to 54.2, 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.
The prices paid index edged down 0.3 point to 58.3 after dipping 0.3 point to 58.6 in October, being flat at 58.9 in September, 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 index for backlog orders fell 1.8 points to 49.1 in November, indicating contraction for the seventh time this year, after rising 2.3 points to 50.9 in October, gaining 6.8 points to 48.6 in September, 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 rose 4.8 points to 53.6 in November after plunging into contraction with a 14.9-point drop to 48.8 in October, rising 1.6 points to 63.7, climbing 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. Of the total respondents in November, 74% indicated they do not perform, or do not separately measure, orders for work outside of the U.S.