Economic activity in the services sector grew in September for the 28th month in a row — with the Services PMI® registering 56.7 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 September, the Services PMI® registered 56.7 percent, 0.2 percentage point lower than August’s reading of 56.9 percent. The Business Activity Index registered 59.1 percent, a decrease of 1.8 percentage points compared to the reading of 60.9 percent in August. The New Orders Index figure of 60.6 percent is 1.2 percentage points lower than the August reading of 61.8 percent.

“The Supplier Deliveries Index registered 53.9 percent, 0.6 percentage point lower than the 54.5 percent reported in August. (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 decreased for the fifth consecutive month in September, down 2.8 percentage points to 68.7 percent. Services businesses still continue to struggle to replenish their stocks, as the Inventories Index contracted for the fourth consecutive month; the reading of 44.1 percent is down 2.1 percentage points from August’s figure of 46.2 percent. The Inventory Sentiment Index (47.2 percent, up 0.1 percentage point from August’s reading of 47.1 percent) contracted for the second consecutive month in September.”

Nieves continues, “According to the Services PMI®, 15 industries reported growth. The composite index indicated growth for the 28th consecutive month after a two-month contraction in April and May 2020. Growth continues — at a slightly slower rate — for the services sector, which has expanded for all but two of the last 152 months. The services sector had a slight pullback in growth for the month of September due to decreases in business activity and new orders. Employment improved and supplier deliveries slowed at a slightly slower rate. Based on comments from Business Survey Committee respondents, there have been improvements regarding supply chain efficiency, operating capacity and materials availability; however, performance remains less than ideal. Employment continued to improve despite the restricted labor market.”
INDUSTRY PERFORMANCE

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

WHAT RESPONDENTS ARE SAYING

“Sales at our restaurants seasonally trend down from August to October, and this year seems to be more severe compared to before the pandemic. General inflation concerns and consumer uncertainty are the likely causes, expressed by industry peers as well.” [Accommodation & Food Services]
“General slowdown in sales. We believe high commodity prices and inflation have impacted consumers’ desire for fertilizer from our turf and ornamental division. Farmers have already cut back on consumption due to pricing and weather-related issues.” [Agriculture, Forestry, Fishing & Hunting]
“September is one of our slowest months of the year. We are gearing up to have a very busy fourth quarter and are seeing some signs of relief in our supply chain.” [Arts, Entertainment & Recreation]
“Sales have slowed significantly. Very challenging market. Trying to build through backlog. Manufacturers, distributors and installation trades are still busy and passing on price increases, while we are discounting homes to stimulate sales. Margins are compressing.” [Construction]
“Due to supply chain issues and inflation, we continue to limit purchases and/or start orders sooner than normal. In the higher education sector, the outlook is good for larger schools.” [Educational Services]
“Labor pressures continue to depress business activity, as insufficient staffing levels are not allowing the hospital system to operate at capacity. Back orders remain unchanged from a month ago as shortages of raw materials — especially surgical grade Tyvek (synthetic polyethylene fiber), foam and plastics — persist and do not appear to be improving. Logistical lead times have decreased, but the impact on supply chains is limited amid product shortages.” [Health Care & Social Assistance]
“Hiring continues to be a challenge across most industry sectors. There are far more open roles than candidates to fill them. Due to inflationary concerns, companies are being cautious about hiring direct employees and are attempting to utilize contingent labor. The lack of candidates willing to fill temporary positions is making this strategy difficult to execute.” [Professional, Scientific & Technical Services]
“Chip shortage shows no signs of abating.” [Retail Trade]
“Prices of fuel are leveling off (or) dropping in small increments. Still facing supply/demand issues with certain products — food, beverages, some raw construction material and semiconductor chips. Big concern is (China’s) zero-tolerance policy for COVID-19 cases. A lot of companies rely on products from China, and cities keep shutting down due to the policy. This greatly affects the orders outstanding and creates lead time uncertainty.” [Transportation & Warehousing]
“Business activity has improved over last month but is still trending flat to slightly down versus the same period last year. Inventory levels are starting to fall from record highs, but overstocked items are still a problem. We expect lower demand and inventory rebalancing to impact business activity through the end of the calendar year.” [Wholesale Trade]