Services PMI® at 50.6%; December 2023 Services ISM® Report On Business®

Business Activity Index at 56.6%; New Orders Index at 52.8%; Employment Index at 43.3%; Supplier Deliveries Index at 49.5%

TEMPE, Ariz., Jan. 5, 2024 /PRNewswire/ — Economic activity in the services sector expanded in December for the 12th consecutive month as the Services PMI^® registered 50.6 percent, say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®. The sector has grown in 42 of the last 43 months, with the lone contraction in December 2022.

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 50.6 percent, 2.1 percentage points lower than November’s reading of 52.7 percent. The composite index indicated growth in December for the 12th consecutive month after a reading of 49.2 percent in December 2022, which was the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 56.6 percent, a 1.5-percentage point increase compared to the reading of 55.1 percent in November. The New Orders Index expanded in December for the 12th consecutive month after contracting in December 2022 for the first time since May 2020; the figure of 52.8 percent is 2.7 percentage points lower than the November reading of 55.5 percent.

“The Supplier Deliveries Index registered 49.5 percent, 0.1 percentage point below the 49.6 percent recorded in November. The index remained in contraction territory for the third consecutive month, indicating that supplier delivery performance was ‘faster’ in contrast to the ‘slowing’ status in September. In the last 11 months, the average reading of 48.3 percent (with a low of 45.8 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 registered 57.4 percent in December, a 0.9-percentage point decrease from the November reading of 58.3 percent. The Inventories Index contracted in December, registering 49.6 percent, a decrease of 5.8 percentage points from November’s figure of 55.4 percent. The Inventory Sentiment Index (55.3 percent, down 6.9 percentage points from November’s reading of 62.2 percent) expanded for the eighth consecutive month. The Backlog of Orders Index contracted in December for the second consecutive month, registering 49.4 percent, a 0.3-percentage point increase compared to the November reading of 49.1 percent.

“Nine industries reported growth in December. The Services PMI^®, by being above 50 percent for the 12th month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector, though at a slower rate in December.”

Nieves continues, “The services sector had a pullback in the rate of growth in December, attributed to the decrease in the rate of growth for new orders and contraction in employment. Respondents’ comments vary by both company and industry. There are concerns related to economic uncertainty, geopolitical events and labor constraints.”

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

WHAT RESPONDENTS ARE SAYING

• “Pricing has become more favorable, in increments. However, beef prices are still high. Petroleum continues to fluctuate. Services has come down slightly, but hourly rates are still higher than pre-pandemic (levels).” [Accommodation & Food Services]
• “Congestion at the Panama Canal is expected to continue for the next several months. The effect of this is rerouting marine cargoes at the expense of cost and schedule.” [Construction]
• “Business conditions are generally good, except for a short supply of major electrical components.” [Educational Services]
• “Revenues remain strong but labor is still constrained, and suppliers are floating price increases beginning January 1, which will likely further reduce already low operating margins. Supply chains appear to be operating closer to pre-pandemic norms and remain mostly stable. Our primary goal for calendar year 2024 is expense reduction across the board, including for supplies and services as well as through eliminating non-value-added pursuits.” [Health Care & Social Assistance]
• “If interest rates go down, investment borrowing will increase, as will orders for services.” [Information]
• “Production and sales are up, and prices are down.” [Mining]
• “Hiring of direct employees, consultants and contract workers remains flat across most industries as the holiday season is in full swing and economic concerns persist. Companies are taking a wait-and-see approach to increasing labor costs as they continue to try to do more work with less people.” [Professional, Scientific & Technical Services]
• “Final push for the holidays. The supply chain and sales are strong — pricing stable.” [Retail Trade]
• “We have seen a typical slow seasonal change in business. This is not unexpected and remains at a higher level than in the previous two years.” [Transportation & Warehousing]
• “There is more stability in the supply chain for the first time since early 2020. Overall level of business activity is still relatively high.” [Utilities]
• “Business is still robust in our area, despite the normal holiday lull. We should see business resume after the first of the year if good weather prevails. Mortgage rates are continuing to fall, which is aiding in affordability. I think the first quarter will yield good demand.” [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
Electrical Components (2); Food and Catering; Janitorial Supplies; Labor (37); Labor — Contract (4); Labor — Construction (2); Software; Software Maintenance and Support; Steel Products; and Transformers.

Commodities Down in Price
Diesel Fuel; Fuel (3); Gasoline (2); Polyvinyl Chloride (PVC) Conduit; and Solar Panels and Films.

Commodities in Short Supply
IV Products; Labor (14); Labor — Construction (4); Labor — Technical; Labor — Technology and Web Related; Transformers (16); and Vehicles (4).

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

DECEMBER 2023 SERVICES INDEX SUMMARIES

Services PMI^®
In December, the Services PMI^® registered 50.6 percent, a 2.1-percentage point decrease compared to the November reading of 52.7 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 December Services PMI^® indicates the overall economy is growing for the 12th consecutive month after one month of contraction in December 2022. Nieves says, “The past relationship between the Services PMI^® and the overall economy indicates that the Services PMI^® for December (50.6 percent) corresponds to a 0.3-percent increase in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI^® HISTORY

Business Activity
ISM^®‘s Business Activity Index registered 56.6 percent in December, an increase of 1.5 percentage points from the reading of 55.1 percent in November, indicating growth for the 43rd consecutive month. The Business Activity Index has been in expansion territory since recovering from its coronavirus pandemic lows. Comments from respondents include: “Surgery schedule increase with year-end deductibles for elective orthopedic procedures” and “Accelerating capital spend.”

The 12 industries reporting an increase in business activity for the month of December — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Retail Trade; Accommodation & Food Services; Finance & Insurance; Transportation & Warehousing; Other Services; Mining; Utilities; Professional, Scientific & Technical Services; Public Administration; and Information. The five industries reporting a decrease in business activity for the month of December are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Construction; Management of Companies & Support Services; and Educational Services.

New Orders
ISM^®‘s New Orders Index registered 52.8 percent, 2.7 percentage points lower than the reading of 55.5 registered in November. The index indicated expansion for the 12th consecutive month after contracting in December 2022, ending a string of 30 consecutive months of growth. Comments from respondents include: “Increased orders and prospects/order conversion” and “New work orders decreased.”

The nine industries reporting an increase in new orders for the month of December — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Transportation & Warehousing; Health Care & Social Assistance; Other Services; Management of Companies & Support Services; Finance & Insurance; Retail Trade; and Utilities. The six industries reporting a decrease in new orders for the month of December — listed in order — are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Mining; Educational Services; Construction; and Professional, Scientific & Technical Services.

Employment
Employment activity in the services sector contracted in December after six consecutive months of growth preceded by a contraction in May and three straight months of growth before that. The Employment Index registered 43.3 percent, down 7.4 percentage points from the November figure of 50.7 percent. Comments from respondents include: “Remote work is preferred for most, making it difficult to recruit skilled employees, and our skilled employees are leaving for hybrid options” and “Layoffs have increased in the professional services and staffing industries over the past several months as companies try to reduce cost amid the climate of economic uncertainty and decreasing customer demand.”

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

Supplier Deliveries
The Supplier Deliveries Index indicated faster performance for the third consecutive month in December, registering 49.5 percent, down 0.1 percentage point from the 49.6 percent recorded in November. The index has been in “faster” territory in 11 of the last 13 months. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. Comments from respondents include: “Most of the COVID-19 supply chain issues at OEMs are behind us” and “Slight uptick in normal delivery times.”

The seven industries reporting slower deliveries in December — listed in order — are: Health Care & Social Assistance; Management of Companies & Support Services; Retail Trade; Transportation & Warehousing; Utilities; Professional, Scientific & Technical Services; and Public Administration. The four industries reporting faster supplier deliveries for the month of December are: Mining; Wholesale Trade; Construction; and Finance & Insurance. Seven industries reported no change in deliveries in December.

Inventories
The Inventories Index contracted in December after growing the previous month. The reading of 49.6 percent was a 5.8-percentage point decrease compared to the 55.4 percent reported in November. Of the total respondents in December, 51 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Running leaner” and “Reduction push for the end of the year, working through aged inventory.”

The seven industries reporting an increase in inventories in December — listed in order — are: Accommodation & Food Services; Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Utilities; Health Care & Social Assistance; and Educational Services. The four industries reporting a decrease in inventories in December are: Mining; Construction; Wholesale Trade; and Public Administration. Seven industries reported no change in inventories in December.

Prices
Prices paid by services organizations for materials and services increased in December for the 79th consecutive month. The Prices Index registered 57.4 percent, 0.9 percentage point lower than the 58.3 percent registered in November. The December reading is the 18th in a row near or below 70 percent (with 10 straight months below 60 percent), following 10 straight months of readings near or above 80 percent.

Eleven services industries reported an increase in prices paid during the month of December, in the following order: Retail Trade; Other Services; Health Care & Social Assistance; Construction; Educational Services; Public Administration; Wholesale Trade; Utilities; Professional, Scientific & Technical Services; Finance & Insurance; and Management of Companies & Support Services. The three industries reporting a decrease in prices for December are: Mining; Information; 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 for the second consecutive month in December after growing in October. The index reading of 49.4 percent is 0.3 percentage point higher than the 49.1 percent reported in November. Of the total respondents in December, 48 percent indicated they do not measure backlog of orders. Respondent comments include: “Capacity has improved and lead times have dropped, but sales have not improved, so we are consuming backlogs at a faster pace” and “Supplies coming in much more reliably.”

The six industries reporting an increase in order backlogs in December — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Health Care & Social Assistance; Educational Services; Retail Trade; and Transportation & Warehousing. The five industries reporting a decrease in order backlogs in December are: Other Services; Management of Companies & Support Services; Wholesale Trade; Information; and Public Administration. Seven industries reported no change in backlogs in December.

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 increased in December for the second consecutive month after a sizeable decline into contraction in October preceded by six consecutive months of expansion. The New Export Orders Index registered 50.4 percent, a 3.2-percentage point decrease from the 53.6 percent reported in November. Of the total respondents in December, 71 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.

The six industries reporting an increase in new export orders in December — listed in order — are: Accommodation & Food Services; Management of Companies & Support Services; Construction; Utilities; Wholesale Trade; and Professional, Scientific & Technical Services. The three industries reporting a decrease in new export orders in December are: Real Estate, Rental & Leasing; Transportation & Warehousing; and Information. Nine industries reported no change in new export orders in December.

Imports
The Imports Index contracted in December, registering 49.3 percent, 4.4 percentage points lower than November’s reading of 53.7 percent. The index has indicated expansion in 13 of the last 16 months, with the previous contraction in March and an “unchanged” status (a reading of 50 percent) in May. Seventy percent of respondents reported that they do not use, or do not track the use of, imported materials.

The only industry reporting an increase in imports for the month of December is Management of Companies & Support Services. The three industries reporting a decrease in imports in December are: Mining; Information; and Professional, Scientific & Technical Services. Fourteen industries reported no change in imports in December.

Inventory Sentiment
The ISM^® Services Inventory Sentiment Index grew for the eighth consecutive month in December after one month of contraction in April, preceded by four consecutive months of growth and four months of contraction from August to November 2022. The index registered 55.3 percent, a 6.9-percentage point decrease from November’s figure of 62.2 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: Arts, Entertainment & Recreation; Other Services; Information; Mining; Agriculture, Forestry, Fishing & Hunting; Construction; Wholesale Trade; Utilities; and Health Care & Social Assistance. The two industries reporting a feeling that their inventories were too low in December are: Transportation & Warehousing; and Management of Companies & Support Services. Six industries reported no change in December.

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 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^®) is the first and leading not-for-profit professional supply management organization worldwide. Its community of more than 50,000 in more than 100 countries manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 by practitioners, 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 empowers and leads the profession through the ISM^® Report On Business^®, its highly-regarded certification and training programs, corporate services, events, and assessments. The ISM^® Report On Business^®, Manufacturing, Services, and Hospital, are three of the most reliable economic indicators available, providing guidance to supply management professionals, economists, analysts, and government and business leaders. For more information, please visit: www.ismworld.org.

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 one exception is in January, the report is released on the fourth business day of the month.

The next Services ISM^® Report On Business^® featuring January 2024 data will be released at 10:00 a.m. ET on Monday, February 5, 2024.

*Unless the New York Stock Exchange is closed.

SOURCE Institute for Supply Management

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