Services PMI® at 51.2%; March 2023 Services ISM® Report On Business®

Business Activity Index at 55.4%; New Orders Index at 52.2%; Employment Index at 51.3%; Supplier Deliveries Index at 45.8%

TEMPE, Ariz, April 5, 2023 /PRNewswire/ — Economic activity in the services sector expanded in March for the third consecutive month as the Services PMI^® registered 51.2 percent, say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®. The sector has grown in 33 of the last 34 months, with the lone contraction in December.

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 March, the Services PMI^® registered 51.2 percent, 3.9 percentage points lower than February’s reading of 55.1 percent. The composite index indicated growth in March for the third consecutive month after a reading of 49.2 percent in December, the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 55.4 percent, a 0.9-percentage point decrease compared to the reading of 56.3 percent in February. The New Orders Index expanded in March for the third consecutive month after contracting in December for the first time since May 2020; the figure of 52.2 percent is 10.4 percentage points lower than the February reading of 62.6 percent.

“The Supplier Deliveries registered 45.8 percent, 1.8 percentage points lower than the 47.6 percent recorded in February. In the last two months, the index has reflected the fastest supplier delivery performance since April 2009, when it registered 45.5 percent. (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 6.1 percentage points in March, to 59.5 percent. The Inventories Index grew in March for the second consecutive month after contracting for eight months in a row; the reading of 52.8 percent is up 2.2 percentage points from February’s figure of 50.6 percent. The Inventory Sentiment Index (57.9 percent, up 2.6 percentage points from February’s reading of 55.3 percent) expanded for the fourth consecutive month after a four-month period of contraction.

“Thirteen industries reported growth in March. The Services PMI^®, by being above 50 percent for a third month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector. The composite index has indicated expansion for all but three of the previous 158 months.”

Nieves continues, “There has been a pullback in the rate of growth for the services sector, attributed mainly to (1) a cooling off in the new orders growth rate, (2) an employment environment that varies by industry and (3) continued improvements in capacity and logistics, a positive impact on supplier performance. The majority of respondents report a positive outlook on business conditions.”

INDUSTRY PERFORMANCE
The 13 services industries reporting growth in March — listed in order — are: Other Services; Arts, Entertainment & Recreation; Educational Services; Accommodation & Food Services; Public Administration; Mining; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Professional, Scientific & Technical Services; Utilities; Health Care & Social Assistance; Construction; and Information. The five industries reporting a decrease in the month of March are: Finance & Insurance; Wholesale Trade; Real Estate, Rental & Leasing; Transportation & Warehousing; and Retail Trade. 

WHAT RESPONDENTS ARE SAYING

• “Restaurant sales remain favorable compared to pre-pandemic trends. Traffic is recovering and nearly flat. We are optimistic about the coming months and have invested in building remodeling and equipment, as well as a new back office and POS (point of sale) system.” [Accommodation & Food Services]
• “Sales continue to increase even as interest rates moderately increase. Most suppliers feel their supply chains are back to normal, with inventories climbing and delivery times improving. (We) fear this will have a detrimental effect in a six- to 12-month time frame.” [Construction]
• “Still experiencing shortages in general labor positions amid demand for higher entry-level wages.” [Educational Services]
• “Close of first quarter business conditions are steady. Already projecting out for 2024. Economic uncertainty is still a concern, and interest rates are continuing to be monitored closely.” [Finance & Insurance]
• “Although patient volumes and revenues continue to be strong, labor and inflationary pressures have led to higher operating expenses, exceeding revenues and resulting in negative operating margins. Supply chains issues are easing, leading to fewer stockouts, though inventory levels are not as healthy as preferred. Enjoying continuous improvement in (lead times), labor, price stability and product reliability. The near-term forecast is optimistic.” [Health Care & Social Assistance]
• “Slowdown in the economy is leading to reduced expenditure amounts.” [Information]
• “Our company continues to have a cautious approach to the future. Continuing uncertainty regarding inflation and oil and gas regulations.” [Management of Companies & Support Services]
• “There continues to be uncertainty in the market regarding future investments. Interest rate hikes seem to have done little to slow down consumer spending. The likelihood of a mild slowdown in the second half of 2023 or 2024 is still pretty high. Layoffs will continue.” [Professional, Scientific & Technical Services]
• “Increased stability in logistics and transportation services have helped stabilize the flow of goods and materials.” [Public Administration]
• “Diesel fuel (prices) down 16 percent and unleaded down 9 percent from a month ago. Other than composite materials, most materials are readily available. Sales have dipped only slightly during this above-normal rainy season and are still consistent with normal winter sales.” [Utilities]
• “Supply is starting to stabilize. Prices are coming down but in small increments. Food prices remain high, and availability continues to be a challenge.” [Transportation & Warehousing]

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
Aluminum Products; Circuit Breakers; Cleaning Products; Electrical Components (26); Electronic Components (3); Food and Beverages; Fuel*; Gasoline (2); HVAC Equipment; Labor (28); Labor — Services (2); Labor — Skilled (2); Pallets (3); Pharmaceuticals; Safety Supplies; Steel Products; and Stretch Film.

Commodities Down in Price
Caustic Soda; Diesel Fuel (3); Fuel*; and Lumber.

Commodities in Short Supply
Appliances (4); Audiovisual Equipment; Blood Collection Tubes (2); Computer Accessories (2); Electrical Equipment; Electronic Components (3); Labor (5); Labor — Construction (2); Needles and Syringes (3); Semiconductors (3); Tourniquets (2); Transformers (7); and Vehicles (9).

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

*Indicates both up and down in price.

MARCH 2023 SERVICES INDEX SUMMARIES

Services PMI^®
In March, the Services PMI^® registered 51.2 percent, a 3.9-percentage point decrease compared to the February reading of 55.1 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 49.9 percent, over time, generally indicates an expansion of the overall economy. Therefore, the March Services PMI^® indicates the overall economy is growing for the third consecutive month after one month of contraction in December. Nieves says, “The past relationship between the Services PMI^® and the overall economy indicates that the Services PMI^® for March (51.2 percent) corresponds to a 0.5-percent increase in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI^® HISTORY

Business Activity
ISM^®‘s Business Activity Index registered 55.4 percent in March, a decrease of 0.9 percentage point from the reading of 56.3 percent in February, indicating growth for the 34th consecutive month. Comments from respondents include: “New requests have started to come through” and “The services sector accounted for the rise in business activity, while manufacturing remained challenged.” Also, “The business mood has brightened amid signs that inflation has peaked, and recession risks have faded.”

The 14 industries reporting an increase in business activity for the month of March — listed in order — are: Other Services; Arts, Entertainment & Recreation; Information; Educational Services; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Mining; Public Administration; Professional, Scientific & Technical Services; Construction; Utilities; Retail Trade; Transportation & Warehousing; and Health Care & Social Assistance. The two industries reporting a decrease in business activity for the month of March are: Finance & Insurance; and Wholesale Trade.

New Orders
ISM^®‘s New Orders Index registered 52.2 percent, down substantially — 10.4 percentage points — from the February reading of 62.6 percent. The index indicated expansion for the third consecutive month after contracting in December, ending a string of 30 consecutive months of growth. Comments from respondents include: “Increased guest traffic over last month” and “Placing orders for the second half of year.”

Twelve industries reported growth of new orders in March, in the following order: Accommodation & Food Services; Arts, Entertainment & Recreation; Other Services; Public Administration; Information; Construction; Educational Services; Agriculture, Forestry, Fishing & Hunting; Mining; Professional, Scientific & Technical Services; Management of Companies & Support Services; and Health Care & Social Assistance. The four industries reporting a decrease in new orders in March are: Real Estate, Rental & Leasing; Retail Trade; Finance & Insurance; and Wholesale Trade.

Employment
Employment activity in the services sector grew in March for the second consecutive month after an unchanged reading in January. ISM^®‘s Employment Index registered 51.3 percent, down 2.7 percentage points from the February figure of 54 percent. Comments from respondents include: “It continues to be difficult to maintain current positions and fill open positions” and “Hiring full-time employees to support business activities.”

The 11 industries reporting an increase in employment in March — listed in order — are: Mining; Arts, Entertainment & Recreation; Educational Services; Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Utilities; Management of Companies & Support Services; Retail Trade; Public Administration; Professional, Scientific & Technical Services; and Construction. The four industries reporting a decrease in employment in March are: Transportation & Warehousing; Information; Finance & Insurance; and Wholesale Trade.

Supplier Deliveries
The Supplier Deliveries Index registered 45.8 percent, down 1.8 percentage points from the 47.6 percent recorded in February. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. The March reading indicates supplier deliveries are faster compared to the previous month. Comments from respondents include: “Fill rates seem to be improving; we’re getting more items per shipment and reordering fewer items due to allocation issues” and “No delivery performance issues — supply on products and services all good.”

The three industries reporting slower deliveries in March are: Accommodation & Food Services; Other Services; and Utilities. The 10 industries reporting faster supplier deliveries for the month of March — listed in order — are: Mining; Construction; Information; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Transportation & Warehousing; Finance & Insurance; Professional, Scientific & Technical Services; and Health Care & Social Assistance.

Inventories
The Inventories Index grew in March for the second consecutive month after eight previous months of contraction, preceded by four months of growth (February-May 2022) and eight months of contraction (June 2021-January 2022). The reading of 52.8 percent was a 2.2-percentage point increase from the 50.6 percent reported in February. Of the total respondents in March, 39 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Building inventory for new contracts that will be coming online later this year” and “Getting very close to ideal inventory levels.”

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

Prices
Prices paid by services organizations for materials and services increased in March for the 70th consecutive month, with the index registering 59.5 percent, 6.1 percentage points lower than the 65.6 percent recorded in February. This is the index’s lowest reading since July 2020, when it registered 57.5 percent. The Prices Index continues to indicate movement toward equilibrium, with a ninth consecutive reading near or below 70 percent, following 10 straight months of readings near or above 80 percent.

Thirteen services industries reported an increase in prices paid during the month of March, in the following order: Real Estate, Rental & Leasing; Information; Health Care & Social Assistance; Utilities; Other Services; Educational Services; Management of Companies & Support Services; Public Administration; Construction; Finance & Insurance; Wholesale Trade; Professional, Scientific & Technical Services; and Retail Trade. The three industries reporting a decrease in prices for March are: Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; and Transportation & Warehousing.

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 contracted in March, ending a stretch of 26 consecutive months of growth. The index registered 48.5 percent, 4.3 percentage points lower than the February reading of 52.8 percent. This is the lowest reading since May 2020 (46.4 percent). Of the total respondents in March, 45 percent indicated they do not measure backlog of orders. Respondent comments include: “Supply chain is more fluid” and “Supply chains and factory production levels are definitely improving.”

The three industries reporting an increase in order backlogs in March are: Retail Trade; Utilities; and Health Care & Social Assistance. The six industries reporting a decrease in order backlogs in March — listed in order — are: Arts, Entertainment & Recreation; Information; Wholesale Trade; Transportation & Warehousing; Educational Services; and Construction. Nine industries reported no change in order backlogs in March.

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 March after two months of expansion preceded by three months (October-December 2022) of contraction and eight months (February-September 2022) of growth. The New Export Orders Index registered 43.7 percent, a dramatic 18-percentage point decrease from the 61.7 percent reported in February. Of the total respondents in March, 74 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.

The four industries reporting an increase in new export orders in March are: Mining; Agriculture, Forestry, Fishing & Hunting; Construction; and Information. The five industries reporting a decrease in new export orders in March are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Accommodation & Food Services; Retail Trade; and Wholesale Trade. Nine industries reported no change in new export orders.

Imports
The Imports Index contracted in March after six straight months of growth, registering 43.6 percent, down 9 percentage points from February’s reading of 52.6 percent. Sixty-eight percent of respondents reported that they do not use, or do not track the use of, imported materials.

The four industries reporting an increase in imports for the month of March are: Agriculture, Forestry, Fishing & Hunting; Professional, Scientific & Technical Services; Construction; and Wholesale Trade. The four industries that reported a decrease in imports in March are: Real Estate, Rental & Leasing; Other Services; Mining; and Health Care & Social Assistance. Ten industries reported no change in imports in March.

Inventory Sentiment
The ISM^® Services Inventory Sentiment Index grew in March for the fourth consecutive month, following four months of contraction. The index registered 57.9 percent, a 2.6-percentage point increase from February’s figure of 55.3 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels.

The 11 industries reporting sentiment that their inventories were too high in March — listed in order — are: Arts, Entertainment & Recreation; Retail Trade; Mining; Wholesale Trade; Accommodation & Food Services; Information; Other Services; Construction; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; and Utilities. The two industries reporting a feeling that their inventories were too low in March are: Management of Companies & Support Services; and Transportation & Warehousing.

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 March 2023.

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 2021 GDP (released December 22, 2022), the six largest services sectors are: Real Estate, Rental & Leasing; Government; Professional, Scientific, & Technical Services; Health Care & Social Assistance; Information; and Finance & Insurance.

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 49.9 percent, over time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 49.9 percent, it is generally declining. The distance from 50 percent or 49.9 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 April 2023 data will be released at 10:00 a.m. ET on Wednesday, May 3, 2023.

*Unless the New York Stock Exchange is closed.

SOURCE Institute for Supply Management

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