Economic activity in the services sector expanded in August for the eighth consecutive month as the Services PMI® registered 54.5 percent, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 38 of the last 39 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 August, the Services PMI® registered 54.5 percent, 1.8 percentage points higher than July’s reading of 52.7 percent. The composite index indicated growth in August for the eighth consecutive month after a reading of 49.2 percent in December, which was the first contraction since June 2020 (45.4 percent). The Business Activity Index registered 57.3 percent, a 0.2-percentage point increase compared to the reading of 57.1 percent in July. The New Orders Index expanded in August for the eighth consecutive month after contracting in December for the first time since May 2020; the figure of 57.5 percent is 2.5 percentage points higher than the July reading of 55 percent.

“The Supplier Deliveries Index registered 48.5 percent, 0.4 percentage point higher than the 48.1 percent recorded in July. In the last six months, the average reading of 47.7 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 up 2.1 percentage points in August, to 58.9 percent. The Inventories Index expanded in August for the fourth 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 57.7 percent is up 7.3 percentage points from July’s figure of 50.4 percent. The Inventory Sentiment Index (61.5 percent, up 4.9 percentage points from July’s reading of 56.6 percent) expanded for the fourth consecutive month after one month of contraction preceded by four months of growth, with a four-month period of contraction from August to November 2022. The Backlog of Orders Index registered 41.8 percent, a 10.3-percentage point decrease compared to the July figure of 52.1 percent.

“Thirteen industries reported growth in August. The Services PMI®, by being above 50 percent for the eighth 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 162 months.”

Nieves continues, “There has been an increase in the rate of growth for the services sector, reflected by increases in all four subindexes that directly factor into the composite Services PMI® and faster supplier deliveries. Sentiment among Business Survey Committee respondents varies by industry; however, the majority of panelists are positive about business and economic conditions.”

INDUSTRY PERFORMANCE

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

WHAT RESPONDENTS ARE SAYING

- “Restaurant sales and traffic trends remain positive year over year and compared to pre-pandemic (levels). Hiring is stable, with quality employees available. New California regulations in July included (municipal) minimum wage hikes and implementation of Proposition 12 (a farm animal health and welfare legislation), resulting in much higher pork prices.” [Accommodation & Food Services]
- “Sales on a national level have been strong. Commodity material prices remain stable, and we are finding areas for cost reductions. Material availability has returned to pre-COVID-19 levels.” [Construction]
- “While labor costs continue to soften, costs of pharmaceuticals and supplies remain stubbornly high, negatively impacting operating margins. Supply chains are operating consistently, though some categories of supply remain constrained. Patient volumes and revenues were down slightly (for the month) but appear to be rebounding as back-to-school season approaches. Forecast remains cautiously optimistic.” [Health Care & Social Assistance]
- “The supply chain challenges affect a portion of our buys, as they include products and components made outside of the U.S. and are subject to shipping delays and issues. The prices of materials and other products have slightly increased. Distribution of some direct materials has been altered due to a key supplier financial issue.” [Management of Companies & Support Services]
- “Steady oil and gas production and sales volume. Declining commodity prices seem to have bottomed out.” [Mining]
- “The summer slowdown is similar to those in recent years due to vacations. Third-quarter projections are close to expectation. Inflationary costs are mostly in fuel and fuel-related commodities, having an adverse effect on profits.” [Professional, Scientific & Technical Services]
- “Prices have settled. Warnings of a possible recession in 2024 are not being taken very seriously by top management. The same experts warned that the country would be in a recession by now. Our general feeling is that the (Federal Reserve’s) strategy for taming inflation and building a soft landing for the economy is working better than expected. The city has proposed reducing its municipal tax for the fiscal year beginning October 1.” [Public Administration]
- “Overall conditions seem quite good, although there is definite slowdown in residential construction driven by rapidly increasing interest rates.” [Real Estate, Rental & Leasing]
- “Business activity continues to be lower year over year, but we are meeting the year-to-date forecast.” [Retail Trade]
- “Utility contractors in high demand.” [Utilities]