Economic activity in the services sector grew in January after contracting in December following 30 consecutive months of growth, with the Services PMI® registering 55.2 percent, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®.

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 January, the Services PMI® registered 55.2 percent, 6 percentage points higher than December’s seasonally adjusted reading of 49.2 percent. The composite index grew in January after contracting in December for the first time since May 2020, when it registered 45.4 percent (seasonally adjusted). The Business Activity Index registered 60.4 percent, a 6.9-percentage point increase compared to the seasonally adjusted reading of 53.5 percent in December. The New Orders Index grew in January after contracting in December for the first time since May 2020; the figure of 60.4 percent is 15.2 percentage points higher than the seasonally adjusted December reading of 45.2 percent.

“The Supplier Deliveries registered 50 percent in January, indicating unchanged performance. The index registered 1.5 percentage points higher than the 48.5 percent reported in December. (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 0.3 percentage point in January, to 67.8 percent. The Inventories Index contracted for the eighth consecutive month; the reading of 49.2 percent is up 4.1 percentage points from December’s figure of 45.1 percent. The Inventory Sentiment Index (55.8 percent, down 0.1 percentage point from December’s reading of 55.9 percent) expanded for the second consecutive month after four straight months in contraction.

“Ten industries reported growth in January, according to the Services PMI®, which was in expansion territory after a single month of contraction and the prior 30-month period of growth. The composite index has indicated expansion for all but three of the previous 155 months.”

Nieves continues, “Business Survey Committee respondents indicated that capacity and logistics performance continue to improve. Although responses varied by industry and company, the majority of panelists indicated that business is trending in a positive direction. Employment was unchanged for the month. Some companies still find it difficult to fill open positions, while others are facilitating staff reductions.”

INDUSTRY PERFORMANCE

The 10 services industries reporting growth in January — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Utilities; Other Services; Management of Companies & Support Services; Public Administration; Educational Services; Accommodation & Food Services; Real Estate, Rental & Leasing; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The eight industries reporting a decrease in the month of January — listed in order — are: Transportation & Warehousing; Retail Trade; Arts, Entertainment & Recreation; Mining; Construction; Information; Finance & Insurance; and Wholesale Trade.

WHAT RESPONDENTS ARE SAYING

- “Raw material availability and lead times have improved but still pose a challenge. In our outlook, we are positive about growth. Consumer confidence is returning, and people are more willing to spend money on luxury items.” [Accommodation & Food Services]
- “Generally, business is strong. Limitations in such areas as labor and packaging keep sales from exceeding expectations.” [Agriculture, Forestry, Fishing & Hunting]
- “New residential housing market is still reeling from mortgage rate increases. Sales have fallen off dramatically at entry-level price points, as costs are trending flat.” [Construction]
- “Demand for services remains high, yet we continue to satisfy demand despite continuing supply chain disruptions. There is improvement in some categories, like blood collection supplies, that have been constrained for more than a year. Others are moderately improving but not to a level where consistency is maintained. Labor is also moderately improving, (helping reduce) staff burnout and fatigue. Forecast for 2023 is currently optimistic.” [Health Care & Social Assistance]
- “While there is still uncertainty in the marketplace, there is a general feeling that supply chain (issues) are relaxing. There is no unrealistic expectation that challenging times are behind us, but we are cautiously optimistic about 2023.” [Information]
- “Orders are strong, but it’s difficult to support customers’ expectations on delivery due to challenges in the supply chain.” [Other Services]
- “Modest increase in sales activity following the holiday slowdown. Still seeing warning signs of a national/international recession. Higher interest rates having an impact. Outlook for the first quarter of 2023 is still projected lower than the same period in 2022.” [Professional, Scientific & Technical Services]
- “We’re still experiencing delivery delays, but fewer than the past two years. Hopefully, lead times will return close to pre-COVID-19 levels.” [Real Estate, Rental & Leasing]
- “Coming off of peak season. Supply chains are solidifying, and capacities are better than in the past.” [Retail Trade]
- “Continued concerns regarding supply continuity. Energy supply costs are very high this winter season.” [Utilities]
- “The slowdown in new housing starts has made business slightly slower than previous years. We are also seeing a slowdown in e-commerce traffic and sales.” [Wholesale Trade]