Economic activity in the services sector expanded in October for the 10th consecutive month as the Services PMI® registered 51.8 percent, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 40 of the last 41 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 October, the Services PMI® registered 51.8 percent, 1.8 percentage points lower than September reading of 53.6 percent. The composite index indicated growth in October for the 10th 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 54.1 percent, a 4.7-percentage point decrease compared to the reading of 58.8 percent in September. The New Orders Index expanded in October for the 10th consecutive month after contracting in December for the first time since May 2020; the figure of 55.5 percent is 3.7 percentage points higher than the September reading of 51.8 percent.

“The Supplier Deliveries Index registered 47.5 percent, 2.9 percentage points lower than the 50.4 percent recorded in September. The index returned to contraction territory, indicating that supplier delivery performance was ‘faster’ in contrast to the ‘slowing’ status from the previous month. In the last eight months, the average reading of 48 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 registered 58.6 percent in October, a 0.3-percentage point decrease from the September reading of 58.9 percent. The Inventories Index returned to contraction in October, registering 49.5 percent, a decrease of 4.7 percentage points from September’s figure of 54.2 percent. The Inventory Sentiment Index (54.4 percent, down 0.4 percentage point from September’s reading of 54.8 percent) expanded for the sixth consecutive month. The Backlog of Orders Index registered 50.9 percent, a 2.3-percentage point increase compared to the September reading of 48.6 percent.

“Twelve industries reported growth in October. The Services PMI®, by being above 50 percent for the 10th 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 October.

Nieves continues, “The services sector continues to slow, with decreases in the Business Activity and Employment indexes. Sentiment among Business Survey Committee respondents’ comments is mixed, with some optimistic about the current steady and stable business conditions and others concerned about such economic factors as inflation, interest rates and geopolitical events. Employment-related challenges are also prevalent, with comments about increasing labor costs, as well as shortages.”
INDUSTRY PERFORMANCE

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

WHAT RESPONDENTS ARE SAYING

- “In general, commodity prices are coming down, but some categories, especially labor, are still elevated and will remain so for the immediate future. Suppliers are citing increased labor costs — wages, salaries and benefits — as the biggest reason for their price increases.” [Accommodation & Food Services]
- “Strength in certain construction sectors is leading to continued optimism. Construction equipment and materials are at generally at lower prices and with faster deliveries. However, this is not the case for all materials or equipment; some prices remain high and with long lead (times).” [Construction]
- “Currently, we are continuing as normal. If the economy takes a downturn, that will have a negative effect on our revenue. We are also leery of potential increases in fuel costs due in part to the unrest in the Middle East. If fuel costs rise, it will have a negative impact on our budget as we strive to continue normal operations on our campus.” [Educational Services]
- “Labor pressures continue, particularly in areas that are hard to recruit. Filling front-line and lower-skill labor positions has gotten very expensive because of competition from large companies and logistics providers. Also, middle management roles are harder to recruit for than they have been in some years.” [Health Care & Social Assistance]
- “With (a supplier’s) labor dispute resolved; we’re expecting a return to the same delivery speeds before it started in July. We are in our busy season, and it’s especially busy this year compared to last fall.” [Information]
- “We are taking a cautious approach due to the increase in crude oil prices. Capital projects have been slowed or postponed until oil prices stabilize. We expect this approach to continue through fiscal year 2024.” [Management of Companies & Support Services]
- “Due to the Israel-Hamas war, communications with clients in the Middle East are pretty much shut down.” [Professional, Scientific & Technical Services]
- “The United Auto Workers (UAW) strike is having no impact so far — our inventory is in good position for now.” [Retail Trade]
- “The general outlook for our organization is less positive than anticipated from the beginning of the year. Performance expectations were revised upward after a strong start to the year, and the results are not expected to be as high as the revised projections. Performance is impacted in part by our customers’ ability to fill our warehouses with product, and it seems the food manufacturing industry is still working toward increasing output, which has lagged a bit since the pandemic.” [Transportation & Warehousing]
- “Business conditions have become murky as of late, but still going strong. However, certain business units are needing to be reevaluated.” [Utilities]
- “The UAW strike and potential government shutdown have created risk and caution for our customers who have pulled back on purchases beginning this month.” [Wholesale Trade]