Economic activity in the services sector expanded in January for the 13th consecutive month as the Services PMI® registered 53.4 percent, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 43 of the last 44 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 January, the Services PMI® registered 53.4 percent, 2.9 percentage points higher than December’s seasonally adjusted reading of 50.5 percent. The composite index indicated growth in January for the 13th consecutive month after a seasonally adjusted reading of 49 percent in December 2022, which was the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 55.8 percent in January, matching the seasonally adjusted reading of 55.8 percent in December. The New Orders Index expanded in January for the 13th consecutive month after contracting in December 2022 for the first time since May 2020; the figure of 55 percent is 2.2 percentage points higher than the seasonally adjusted December reading of 52.8 percent.

“The Supplier Deliveries Index registered 52.4 percent, 2.9 percentage points above the 49.5 percent recorded in December. The index returned to expansion — indicating that supplier delivery performance was slower — after three consecutive months in contraction (or ‘faster’) territory. In the last 12 months, the average reading of 48.6 percent (with a low of 45.8 in March) reflects the fastest supplier delivery performance since December 2022, when the index registered 48.5 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 64 percent in January, a 7.3-percentage point increase from December’s seasonally adjusted reading of 56.7 percent. The Inventories Index contracted in January, registering 49.1 percent, a decrease of 0.5 percentage point from December’s figure of 49.6 percent. The Inventory Sentiment Index (59.3 percent, up 4 percentage points from December’s reading of 55.3 percent) expanded for the ninth consecutive month. The Backlog of Orders Index returned to expansion in January after two consecutive months in contraction, registering 51.4 percent, a 2-percentage point increase compared to the December reading of 49.4 percent.

“Ten industries reported growth in January. The Services PMI®, by being above 50 percent for the 13th consecutive month (after a single month of contraction in December 2022 and a prior 30-month period of expansion), continues to indicate sustained growth — and at a faster rate in January — for the sector.”

Nieves continues, “The overall growth rate increase in January is attributable to faster growth of the New Orders, Employment, and Supplier Deliveries indexes. The majority of respondents indicate that business is steady. They are optimistic about the economy due to the potential impact of interest rate cuts; however, they are cautious due to inflation, associated cost pressures and ongoing geopolitical conflicts.”

INDUSTRY PERFORMANCE

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

WHAT RESPONDENTS ARE SAYING

“Supply chain disruptions forced a change to min/max (inventory calculations) to assure on-time materials; now that most disruptions are over, those calculations are being normalized, which will slow down ordering while inventories right-size. The district is seeing higher-than-normal turnover as workers are being aggressively pursued by districts offering higher wages. Water sales are lower than expected due to unseasonably cool weather. This will put pressure on rates, along with an increase in wages in order to attract and retain quality employees.” [Utilities]
“Transportation impacts of the Suez Canal, due to unrest in the Red Sea and the issues at the Panama Canal are impacting both costs and schedules for the transport of global goods.” [Construction]
“Last year was tough for our business. We are hoping that the economy improves and things stabilize in 2024. It’s a presidential election year, so we’re hopeful.” [Wholesale Trade]
“Economy signals are mixed. Some sectors are booming and some — like solar and wind power, ship building and electric vehicles — are slowing down. Other downward-trending sectors are iron and steel, paper and communication equipment. But overall, the economy is in good shape and there is no imminent threat of a recession.” [Retail Trade]
“Economic indicators generally look good; however, there is still some uncertainty. We continue to see more demand for our services, but this may not be indicative: Our services are always more in demand when the economy is worse than when it is better. It would be amiss not to mention that we are still seeing the effect of people returning to offices, which impacts demand. Though demand has continually increased, it is not at pre-pandemic levels.” [Transportation Equipment]
“Increase in activity; expecting a busy 2024.” [Finance & Insurance]
“Most companies I work with are gearing up for a tough 2024. Some may be overreacting, but there is a general sense that election years in the U.S. result in unrest, which is causing everyone to be conservative with spend.” [Professional, Scientific & Technical Services]
“The writers and actors strike has impacted our business significantly. This will not be a great year for movie exhibitors.” [Arts, Entertainment & Recreation]
“Respiratory sicknesses — COVID-19, RSV (respiratory syncytial virus) and flu — continue to keep our facility hopping to treat patients.” [Health Care & Social Assistance]
“(Looking to rebound) after a significant downturn in December, which was likely due to extended plant shutdowns, customer inventory burns and lingering effects from the United Auto Workers (UAW) strike.” [Wholesale Trade]