Services PMI® at 49.6%; December 2022 Services ISM® Report On Business®

Business Activity Index at 54.7%; New Orders Index at 45.2%; Employment Index at 49.8%; Supplier Deliveries Index at 48.5%

TEMPE, Ariz., Jan. 6, 2023 /PRNewswire/ — Economic activity in the services sector contracted in December after 30 consecutive months of growth — with the Services PMI^® registering 49.6 percent — say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management^® (ISM^®) Services Business Survey Committee: “In December, the Services PMI^® registered 49.6 percent, 6.9 percentage points lower than November’s reading of 56.5 percent. The composite index contracted for the first time since May 2020, when it registered 45.2 percent. The Business Activity Index registered 54.7 percent, a substantial — 10 percentage point — decrease compared to the reading of 64.7 percent in November. The New Orders Index contracted in December for the first time since May 2020; the figure of 45.2 percent is 10.8 percentage points lower than the November reading of 56 percent.

“The Supplier Deliveries contracted in December, indicating faster performance. The index registered 48.5 percent, 5.3 percentage points lower than the 53.8 percent reported in November. (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 Prices Index was down 2.4 percentage points in December, to 67.6 percent. The Inventories Index contracted for the seventh consecutive month; the reading of 45.1 percent is down 2.8 percentage points from November’s figure of 47.9 percent. The Inventory Sentiment Index (55.9 percent, up 11.7 percentage points from November’s reading of 44.2 percent) returned to expansion after four straight months in contraction.

“According to the Services PMI^®, 11 industries reported growth. The composite index ended a 30-month period of growth, contracting for the first time since two straight months of sub-50 percent readings in April and May 2020. Of the four subindexes that directly factor into the Services PMI^®, three — New Orders, Employment and Supplier Deliveries — contracted in December. Prior to the current contraction in the services sector, the PMI^® indicated growth for all but two of the previous 154 months, including a faster rate of expansion in November.”

Nieves continues, “Business Survey Committee respondents indicated that supplier deliveries were faster in December, based on increased capacity and improved logistics. Employment contracted due to a combination of decreased hiring due to economic uncertainty and an inability to backfill open positions. The holiday season contributed to the continued growth in business activity, albeit at a slower rate.” 

INDUSTRY PERFORMANCE
The 11 services industries reporting growth in December — listed in order — are: Retail Trade; Health Care & Social Assistance; Utilities; Public Administration; Arts, Entertainment & Recreation; Mining; Accommodation & Food Services; Transportation & Warehousing; Management of Companies & Support Services; Professional, Scientific & Technical Services; and Finance & Insurance. The six industries reporting a decrease in the month of December — listed in order — are: Real Estate, Rental & Leasing; Wholesale Trade; Other Services; Information; Construction; and Educational Services. 

WHAT RESPONDENTS ARE SAYING

• “Business is slower than usual. Seems to be a three- or four-month trend. We expect it to pick up after the first of the year.” [Agriculture, Forestry, Fishing & Hunting]
• “Residential new construction continues to be hindered by higher interest rates, slowing sales dramatically. A shift to rental projects seems to be a trend for all builders.” [Construction]
• “We’re dealing with inflation, increasing labor costs, longer lead times and the higher education sector struggling to retain employees.” [Educational Services]
• “Business conditions for year-end 2022 are good, but not great. Preparing for a possible recession in 2023, but with some optimism in the overall economy.” [Finance & Insurance]
• “Continue to see product pricing, staffing and labor cost increases across the board, with almost no easy savings opportunities in our supply chain operation. Feel that this will be the standard in 2023.” [Health Care & Social Assistance]
• “Electronic component supply is becoming much better week by week.” [Information]
• “Activity level remained flat as we began to round out the year.” [Mining]
• “Seeing continual slowing of orders, along with a more receptive supply base.” [Professional, Scientific & Technical Services]
• “We are optimistic, although concerned, about continued inflation pressures, lead times that remain well above typical and supply chain issues that just won’t go away. Increasing interest rates are dampening the residential housing construction market, which only adds to the concerns.” [Real Estate, Rental & Leasing]
• “Higher-than-average increases in end-of-year software and support renewals due to increased labor and economy costs.” [Retail Trade]
• “We are in the busiest season of the year in our business, and inflation is definitely putting the squeeze on our margins.” [Wholesale Trade]

Services ISM^® Report On Business^® data is seasonally adjusted for the Business Activity, New Orders, Employment and Prices indexes. Manufacturing ISM^® Report On Business^® data is seasonally adjusted for New Orders, Production, Employment and Inventories indexes.

*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE, AND IN SHORT SUPPLY

Commodities Up in Price
Chemicals; Diesel Fuel (3); Electrical Components (23); Food; Food and Beverages; Labor (25); and Transformers.

Commodities Down in Price
Freight; Fuel (5); Gasoline (5); Lumber; and Oriented Strand Board (OSB).

Commodities in Short Supply
Appliances; Brass Fittings; Chemicals (2); Construction Materials; Electrical Components; Labor (2); Labor — Construction; Pallets; Transformers (4); Valves; and Vehicles (6). 

Note: The number of consecutive months the commodity is listed is indicated after each item.

DECEMBER 2022 SERVICES INDEX SUMMARIES

Services PMI^®

In December, the Services PMI^® registered 49.6 percent, a 6.9-percentage point decrease compared to the November reading of 56.5 percent. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates it is generally contracting.

A Services PMI^® above 50.1 percent, over time, generally indicates an expansion of the overall economy. Therefore, the December Services PMI^® indicates the overall economy is contracting after a preceding period of 30 months of growth. Nieves says, “The past relationship between the Services PMI^® and the overall economy indicates that the Services PMI^® for December (49.6 percent) corresponds to a 0.2-percent decrease in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI^® HISTORY

Business Activity

ISM^®‘s Business Activity Index registered 54.7 percent in December, a notable decrease of 10 percentage points from the reading of 64.7 percent in November, indicating growth for the 31st consecutive month. Comments from respondents include: “Sales have increased” and “Holiday demand.”

The 11 industries reporting an increase in business activity for the month of December — listed in order — are: Retail Trade; Mining; Health Care & Social Assistance; Accommodation & Food Services; Public Administration; Management of Companies & Support Services; Utilities; Transportation & Warehousing; Finance & Insurance; Educational Services; and Construction. The four industries reporting a decrease in business activity for the month of December are: Real Estate, Rental & Leasing; Other Services; Wholesale Trade; and Information.

New Orders

ISM^®‘s New Orders Index registered 45.2 percent, down a notable 10.8 percentage points from the November reading of 56 percent. New orders contracted after 30 consecutive months of growth. Comments from respondents include: “High interest rates for mortgages have slowed sales dramatically” and “Orders from customers are softening, and some orders are being canceled.”

Five industries reported growth of new orders in December: Transportation & Warehousing; Health Care & Social Assistance; Management of Companies & Support Services; Retail Trade; and Utilities. The eight industries reporting a decrease in new orders in December — listed in order — are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Other Services; Information; Educational Services; Wholesale Trade; Construction; and Professional, Scientific & Technical Services.

Employment

Employment activity in the services sector contracted in December after growing in November. ISM^®‘s Employment Index registered 49.8 percent, down 1.7 percentage points from the November reading of 51.5 percent. Comments from respondents include: “We have lost employees due to normal attrition and are having issues backfilling positions” and “Our company has tightened hiring of new employees month over month, due to uncertainty around the strength of the economy going into 2023.”

The five industries reporting an increase in employment in December are: Arts, Entertainment & Recreation; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; and Professional, Scientific & Technical Services. The four industries reporting a decrease in employment in December are: Management of Companies & Support Services; Real Estate, Rental & Leasing; Wholesale Trade; and Health Care & Social Assistance. Nine industries reported no change in employment.

Supplier Deliveries

The Supplier Deliveries Index registered 48.5 percent, down 5.3 percentage points from the 53.8 percent recorded in November. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. Comments from respondents include: “With demand falling, orders are being moved up or made available quicker” and “Supply chain catching up to demand.”

The five industries reporting slower deliveries in December are: Management of Companies & Support Services; Public Administration; Utilities; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The seven industries reporting faster supplier deliveries for the month of December — listed in order — are: Transportation & Warehousing; Wholesale Trade; Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Finance & Insurance; and Construction. Six industries reported no change in supplier deliveries.

Inventories

The Inventories Index contracted in December for the seventh consecutive month after four straight months of growth preceded by an eight-month period of contraction. The reading of 45.1 percent was a 2.8-percentage point decrease from the 47.9 percent reported in November. Of the total respondents in December, 45 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Trying to lower inventory for calendar year end” and “Still working through excess supply.”

The six industries reporting an increase in inventories in December — listed in order — are: Arts, Entertainment & Recreation; Accommodation & Food Services; Utilities; Agriculture, Forestry, Fishing & Hunting; Public Administration; and Health Care & Social Assistance. The seven industries reporting a decrease in inventories in December — listed in order — are: Real Estate, Rental & Leasing; Management of Companies & Support Services; Construction; Educational Services; Information; Professional, Scientific & Technical Services; and Wholesale Trade.

Prices

Prices paid by services organizations for materials and services increased in December for the 67th consecutive month, with the index registering 67.6 percent, 2.4 percentage points lower than the 70 percent recorded in November. The Prices Index continues to indicate movement toward equilibrium, with a sixth consecutive reading near or below 70 percent, following nine straight months of readings above 80 percent.

Fifteen services industries reported an increase in prices paid during the month of December, in the following order: Public Administration; Information; Health Care & Social Assistance; Management of Companies & Support Services; Retail Trade; Utilities; Professional, Scientific & Technical Services; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Other Services; Educational Services; Finance & Insurance; Transportation & Warehousing; Construction; and Wholesale Trade. No industry reported a decrease in prices for December.

NOTE: Commodities reported as up in price and down in price are listed in the commodities section of this report.

Backlog of Orders

The ISM^® Services Backlog of Orders Index grew in December for the 24th consecutive month. The index registered 51.5 percent, 0.3 percentage point lower than the November reading of 51.8 percent. Of the total respondents in December, 55 percent indicated they do not measure backlog of orders. Respondent comments include: “Slowing customer demand, combined with increased supplier shipments and more availability” and “Many suppliers are catching up in their deliveries.”

The six industries reporting an increase in order backlogs in December — listed in order — are: Arts, Entertainment & Recreation; Other Services; Health Care & Social Assistance; Transportation & Warehousing; Finance & Insurance; and Utilities. The four industries reporting a decrease in order backlogs in December are: Wholesale Trade; Construction; Educational Services; and Professional, Scientific & Technical Services. Eight industries reported no change.

New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based companies contracted in December for the third consecutive month after an eight-month period of growth. The New Export Orders Index registered 47.7 percent, a 9.3-percentage point increase from the 38.4 percent reported in November. Of the total respondents in December, 73 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.

The seven industries reporting an increase in new export orders in December — listed in order — are: Retail Trade; Accommodation & Food Services; Finance & Insurance; Professional, Scientific & Technical Services; Educational Services; Transportation & Warehousing; and Wholesale Trade. The four industries reporting a decrease in new export orders in December are: Real Estate, Rental & Leasing; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; and Information. Seven industries indicated no change in new export orders in December.

Imports

The Imports Index grew for the fourth consecutive month in December after three previous months of contraction, registering 52.7 percent, down 6.8 percentage points from November’s reading of 59.5 percent. Seventy-two percent of respondents reported that they do not use, or do not track the use of, imported materials.

The five industries reporting an increase in imports for the month of December are: Accommodation & Food Services; Management of Companies & Support Services; Retail Trade; Transportation & Warehousing; and Professional, Scientific & Technical Services. The three industries that reported a decrease in imports in December are: Agriculture, Forestry, Fishing & Hunting; Information; and Wholesale Trade. Ten industries reported no change in imports in December.

Inventory Sentiment

The ISM^® Services Inventory Sentiment Index grew in December after four straight months of contraction. The index registered 55.9 percent, a 11.7-percentage point increase from November’s figure of 44.2 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels.

The nine industries reporting sentiment that their inventories were too high in December — listed in order — are: Wholesale Trade; Arts, Entertainment & Recreation; Construction; Utilities; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Mining; Information; and Health Care & Social Assistance. The three industries reporting a feeling that their inventories were too low in December are: Real Estate, Rental & Leasing; Management of Companies & Support Services; and Educational Services. Six industries reported no change in inventory sentiment.

About This Report

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report’s information reflects the entire U.S., while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of December 2022.

The data presented herein is obtained from a survey of supply executives in the services sector based on information they have collected within their respective organizations. ISM^® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation

The Services ISM^® Report On Business^® (formerly the Non-Manufacturing ISM^® Report On Business^®) is based on data compiled from purchasing and supply executives nationwide. Membership of the Services Business Survey Committee (formerly Non-Manufacturing Business Survey Committee) is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). The Services Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Public Administration; and Other Services (services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating Services). The data are weighted based on each industry’s contribution to GDP. According to the BEA estimates for 2020 GDP (released December 22, 2021), the six largest services sectors are: Real Estate, Rental & Leasing; Government; Professional, Scientific, & Technical Services; Health Care & Social Assistance; Information; and Finance & Insurance. Beginning in February 2020 with January 2020 data, computation of the indexes is accomplished utilizing unrounded numbers.

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change, Inventory Sentiment, Imports, Prices, Employment and Supplier Deliveries), this report shows the percentage reporting each response and the diffusion index. Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The Services PMI^® is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

A Services PMI^® above 50.1 percent, over time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 50.1 percent, it is generally declining. The distance from 50 percent or 50.1 percent is indicative of the strength of the expansion or decline.

The Services ISM^® Report On Business^® survey is sent out to Services Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on U.S. operations for the current month. ISM^® receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses to give the most accurate picture of current business activity. ISM^® then compiles the report for release on the third business day of the following month.

The industries reporting growth, as indicated in the Services ISM^® Report On Business^® monthly report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

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About Institute for Supply Management^®

Institute for Supply Management^® (ISM^®) serves supply management professionals in more than 90 countries. Its 50,000 members around the world manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM leads the profession through the ISM^® Report On Business^®, its highly regarded certification programs and the ISM^® Advance^™ Digital Platform. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

The full text version of the Services ISM^® Report On Business^® is posted on ISM^®‘s website at www.ismrob.org on the third business day* of every month after 10:00 a.m. ET.

The next Services ISM^® Report On Business^® featuring January 2023 data will be released at 10:00 a.m. ET on Friday, February 3, 2023.

*Unless the New York Stock Exchange is closed.

SOURCE Institute for Supply Management

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