Services PMI® at 53.9%; June 2023 Services ISM® Report On Business®

Business Activity Index at 59.2%; New Orders Index at 55.5%; Employment Index at 53.1%; Supplier Deliveries Index at 47.6%

TEMPE, Ariz., July 6, 2023 /PRNewswire/ — Economic activity in the services sector expanded in June for the sixth consecutive month as the Services PMI^® registered 53.9 percent, say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®. The sector has grown in 36 of the last 37 months, with the lone contraction in December of last year.

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 June, the Services PMI^® registered 53.9 percent, 3.6 percentage points higher than May’s reading of 50.3 percent. The composite index indicated growth in June for the sixth consecutive month after a reading of 49.2 percent in December, which was the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 59.2 percent, a 7.7-percentage point increase compared to the reading of 51.5 percent in May. The New Orders Index expanded in June for the sixth consecutive month after contracting in December for the first time since May 2020; the figure of 55.5 percent is 2.6 percentage points higher than the May reading of 52.9 percent.

“The Supplier Deliveries Index registered 47.6 percent, 0.1 percentage point lower than the 47.7 percent recorded in May. In the last six months, the average reading of 47.9 percent (with a low of 45.8 percent in March) reflects the fastest supplier delivery performance since June 2009, when the index registered 46 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 2.1 percentage points in June, to 54.1 percent. The Inventories Index expanded in June for the second consecutive month, after one month of contraction preceded by two months of growth and eight months of contraction from June 2022 to January 2023; the reading of 55.9 percent is down 2.4 percentage points from May’s figure of 58.3 percent. The Inventory Sentiment Index (54 percent, down 7 percentage points from May’s reading of 61 percent) expanded for the second consecutive month after one month of contraction preceded by four months of growth, with a four-month period of contraction before that. The Backlog of Orders Index registered 43.9 percent, a 3-percentage point increase compared to the May figure of 40.9 percent, which was the index’s lowest reading since May 2009 (40 percent).

“Fifteen industries reported growth in June. The Services PMI^®, by being above 50 percent for the sixth 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 160 months.”

Nieves continues, “There has been an uptick in the rate of growth for the services sector. This is due mostly to the increase in business activity, new orders and employment. Increased capacity, backlog reduction and continued improvements in logistics have impacted delivery times (resulting in a decrease in the Supplier Deliveries Index). The majority of respondents indicate that business conditions remain stable; however, they are cautious relative to inflation and the future economic outlook.”

INDUSTRY PERFORMANCE
The 15 services industries reporting growth in June — listed in order — are: Accommodation & Food Services; Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Public Administration; Educational Services; Management of Companies & Support Services; Transportation & Warehousing; Wholesale Trade; Other Services; Utilities; Professional, Scientific & Technical Services; Construction; Finance & Insurance; Retail Trade; and Health Care & Social Assistance. The three industries reporting a decrease in the month of June are: Agriculture, Forestry, Fishing & Hunting; Mining; and Information. 

WHAT RESPONDENTS ARE SAYING

• “Stabilizing inflation rates are helping our overall situation. (High inflation as) done much to disrupt our pricing for services and rent over the past two years.” [Agriculture, Forestry, Fishing & Hunting]
• “We have been very busy in June, with great content coming out of the studios and the summer guest traffic.” [Arts, Entertainment & Recreation]
• “Monitoring China’s anti-espionage legislation going into effect on July 1 that may have an impact on normal supply chain business operations like market research, recruitment, trade secret leakage, employing former government officials and data sharing between Chinese and foreign companies in joint domestic or cross-border projects, including transfer of technology or information sharing.” [Construction]
• “General business conditions are still active and steady. We’re ramping up for a busy third quarter with some expansion and preparations for early 2024 capital projects.” [Finance & Insurance]
• “Strong procedural volumes are driving above-budget revenue performance, but profitability continues to suffer due to higher expenses. Inflationary pressures, staffing challenges, limited capacity and insufficient payer rates continue to financially challenge the health system. Supply chains continue to moderately improve.” [Health Care & Social Assistance]
• “Supply chain lead times have stabilized and prices are holding or, in some cases, dropping slightly. It’s been a long time coming.” [Information]
• “Our company is maintaining an overall cautious approach, with inflation and the economy as main concerns. With oil prices stabilizing at around (US) $70 a barrel, we hope they start refilling the Strategic Petroleum Reserve to replace the oil withdrawn via emergency-use release during the pandemic.” [Management of Companies & Support Services]
• “Increased demand for new transformation programs, with prices holding and an increase in clients’ capital budget allocations.” [Professional, Scientific & Technical Services]
• “Business remains higher than a year ago but is falling short of forecasts and projections.” [Real Estate, Rental & Leasing]
• “Overall business conditions are good, but growth is at a slow pace.” [Retail Trade]
• “Labor rates continue to be a challenge even with more people looking to return to work. Inflation is most likely a cause for this. Some incremental lower pricing on food.” [Transportation & Warehousing]
• “High operational expenses continue to put pressure on our business and limit hiring. Service levels from suppliers continue to improve. Trucking metrics and sales also improved.” [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
Beef (2); Construction Subcontractors; Copper Based Materials; Electrical Components (29); Fuel (4); Gasoline (5); Heating, Ventilation and Air Conditioning (HVAC) Equipment; Labor (31); Labor — Skilled (5); Lumber*; Maintenance, Repair and Operating (MRO) Supplies; Oriented Strand Board (OSB); and Wood Pallets (2).

Commodities Down in Price
Freight; Lumber*; and Transportation.

Commodities in Short Supply
Appliances (7); Construction Contractors (2); Construction Subcontractors; Electrical Components (3); Labor (8); Labor — Construction (5); Labor — Skilled (2); and Transformers (10).

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

*Indicates both up and down in price.

JUNE 2023 SERVICES INDEX SUMMARIES

Services PMI^®
In June, the Services PMI^® registered 53.9 percent, a 3.6-percentage point increase compared to the May reading of 50.3 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 June Services PMI^® indicates the overall economy is growing for the sixth 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 June (53.9 percent) corresponds to a 1.4-percent increase in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI^® HISTORY

Business Activity
ISM^®‘s Business Activity Index registered 59.2 percent in June, an increase of 7.7 percentage points from the reading of 51.5 percent in May, indicating growth for the 37th consecutive month. Comments from respondents include: “Customer volume is increasing” and “Additional business contracted.”

The 15 industries reporting an increase in business activity for the month of June — listed in order — are:  Accommodation & Food Services; Arts, Entertainment & Recreation; Finance & Insurance; Real Estate, Rental & Leasing; Educational Services; Wholesale Trade; Transportation & Warehousing; Public Administration; Other Services; Utilities; Information; Health Care & Social Assistance; Professional, Scientific & Technical Services; Retail Trade; and Construction. The two industries reporting a decrease in business activity for the month of June are: Agriculture, Forestry, Fishing & Hunting; and Mining.

New Orders
ISM^®‘s New Orders Index registered 55.5 percent, up 2.6 percentage points from the May reading of 52.9 percent. The index indicated expansion for the sixth consecutive month after contracting in December, ending a string of 30 consecutive months of growth. Comments from respondents include: “Business expansion and higher seasonal demand” and “New customers added as our business continues to grow.”

The 13 industries reporting an increase in new orders for the month of June — listed in order — are: Accommodation & Food Services; Arts, Entertainment & Recreation; Educational Services; Public Administration; Wholesale Trade; Transportation & Warehousing; Management of Companies & Support Services; Finance & Insurance; Other Services; Construction; Professional, Scientific & Technical Services; Health Care & Social Assistance; and Utilities. The four industries reporting a decrease in new orders for the month of June are: Mining; Agriculture, Forestry, Fishing & Hunting; Retail Trade; and Information.

Employment
Employment activity in the services sector grew in June after contracting in May, with three consecutive months of growth before that; the index registered 53.1 percent, up 3.9 percentage points from the May figure of 49.2 percent. Comments from respondents include: “Unable to find qualified candidates for some open positions” and “Finally able to fill some positions that have been open for some time.”

The nine industries reporting an increase in employment in June — listed in order — are: Accommodation & Food Services; Real Estate, Rental & Leasing; Retail Trade; Arts, Entertainment & Recreation; Transportation & Warehousing; Professional, Scientific & Technical Services; Public Administration; Construction; and Utilities. The five industries reporting a decrease in employment in June are: Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Educational Services; Wholesale Trade; and Health Care & Social Assistance.

Supplier Deliveries
The Supplier Deliveries Index registered 47.6 percent, down 0.1 percentage point from the 47.7 percent recorded in May. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. The June reading indicates supplier deliveries are faster and at a faster rate compared to the previous month. Comments from respondents include: “Improved fulfillment” and “Trucking seems sufficient, but rail is lagging.”

The three industries reporting slower deliveries in June are: Management of Companies & Support Services; Utilities; and Educational Services. The nine industries reporting faster supplier deliveries for the month of June — listed in order — are: Mining; Transportation & Warehousing; Information; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Wholesale Trade; Professional, Scientific & Technical Services; Construction; and Health Care & Social Assistance. Six industries reported no change in June.

Inventories
The Inventories Index grew in June for the second consecutive month after contracting in April. The index indicated four months of growth from February to May 2022 and eight months of contraction from June 2022 to January 2023. The reading of 55.9 percent in June was a 2.4-percentage point decrease from the 58.3 percent reported in May, which was the index’s highest reading since February 2021 (58.9 percent). Of the total respondents in June, 46 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Focused on reducing on hand inventory” and “Working through older excess inventory.”

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

Prices
Prices paid by services organizations for materials and services increased in June for the 73rd consecutive month, with the index registering 54.1 percent, 2.1 percentage points lower than the 56.2 percent recorded in May. The Prices Index continues to indicate movement toward equilibrium, with a 12th consecutive reading near or below 70 percent (and four straight months below 60 percent), following 10 straight months of readings near or above 80 percent.

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

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 June for the fourth consecutive month after a previous stretch of 26 months of growth. The index reading of 43.9 percent is 3 percentage points higher than the 40.9 percent reported in May. Of the total respondents in June, 48 percent indicated they do not measure backlog of orders. Respondent comments include: “Lower lead times” and “Material deliveries are improving, enabling us to reduce backlog.”

The seven industries reporting an increase in order backlogs in June — listed in order — are: Public Administration; Management of Companies & Support Services; Retail Trade; Professional, Scientific & Technical Services; Finance & Insurance; Utilities; and Construction. The seven industries reporting a decrease in order backlogs in June — listed in order — are: Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Mining; Wholesale Trade; Transportation & Warehousing; Information; and Health Care & Social Assistance.

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 grew for the third consecutive month in June. The New Export Orders Index registered 61.5 percent, a 2.5-percentage point increase from the 59 percent reported in May. New export orders contracted in March after two months of expansion. The index indicated contraction from October to December 2022, with eight months (February-September 2022) of growth before that. Of the total respondents in June, 72 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 June — listed in order — are: Accommodation & Food Services; Real Estate, Rental & Leasing; Construction; Management of Companies & Support Services; Information; Transportation & Warehousing; and Professional, Scientific & Technical Services. The four industries reporting a decrease in new export orders in June are: Mining; Agriculture, Forestry, Fishing & Hunting; Retail Trade; and Wholesale Trade. Seven industries reported no change in new export orders in June.

Imports
The Imports Index registered 54.6 in June, up 4.6 percentage points from May’s reading of 50 percent. The index indicated expansion in nine of the last 10 months, with the only contraction in March. Sixty-six percent of respondents reported that they do not use, or do not track the use of, imported materials.

The seven industries reporting an increase in imports for the month of June — listed in order — are: Accommodation & Food Services; Retail Trade; Management of Companies & Support Services; Construction; Information; Wholesale Trade; and Professional, Scientific & Technical Services. The only industry that reported a decrease in imports in June is Agriculture, Forestry, Fishing & Hunting. Ten industries reported no change in imports in June.

Inventory Sentiment
The ISM^® Services Inventory Sentiment Index grew for the second consecutive month in June after a contraction in April, preceded by four consecutive months of growth and four months of contraction prior to that. The index registered 54 percent, a 7-percentage point decrease from May’s figure of 61 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels.

The eight industries reporting sentiment that their inventories were too high in June — listed in order — are: Wholesale Trade; Arts, Entertainment & Recreation; Mining; Utilities; Information; Construction; Health Care & Social Assistance; and Agriculture, Forestry, Fishing & Hunting. The six industries reporting a feeling that their inventories were too low in June — listed in order — are: Real Estate, Rental & Leasing; Retail Trade; Management of Companies & Support Services; Public Administration; Transportation & Warehousing; and Professional, Scientific & Technical Services.

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 June 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 July 2023 data will be released at 10:00 a.m. ET on Thursday, August 3, 2023.

*Unless the New York Stock Exchange is closed.

SOURCE Institute for Supply Management

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