ISM Services in Positive Territory, Up Slightly, Much Better Than Manufacturing

In contrast to a dismal ISM manufacturing report, services ticked up slightly.

Please consider the November 2023 Services ISM^® Report On Business^® emphasis mine.

Economic activity in the services sector expanded in November for the 11th consecutive month as the Services PMI^® registered 52.7 percent, say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®. The sector has grown in 41 of the last 42 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 November, the Services PMI^® registered 52.7 percent, 0.9 percentage point higher than October’s reading of 51.8 percent. The composite index indicated growth in November for the 11th 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 55.1 percent; a 1-percentage point increase compared to the reading of 54.1 percent in October. The New Orders Index expanded in November for the 11th consecutive month after contracting in December for the first time since May 2020; the figure of 55.5 percent equals the October reading.

“The Prices Index registered 58.3 percent in November, a 0.3-percentage point decrease from the October reading of 58.6 percent. The Inventories Index returned to growth in November, registering 55.4 percent, an increase of 5.9 percentage points from October’s figure of 49.5 percent. The Inventory Sentiment Index (62.2 percent, up 7.8 percentage points from October’s reading of 54.4 percent) expanded for the seventh consecutive month. The Backlog of Orders Index contracted in November and registered 49.1 percent, a 1.8-percentage point decrease compared to the October reading of 50.9 percent.

“Fifteen industries reported growth in November. The Services PMI®, by being above 50 percent for the 11th month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector, and at a slightly faster rate in November.”

Nieves continues, “The services sector had a slight uptick in growth in November, attributed to the increase in business activity and slight employment growth. Respondents’ comments vary by both company and industry. There is continuing concern about inflation, interest rates and geopolitical events. Rising labor costs and labor constraints remain employment-related challenges.”

Rising Labor Costs Concern

That is the key take away from the report.

The second notable is a declining backlog of orders with employment barely positive.

I also commented backlogs in my ISM manufacturing report.

ISM Manufacturing Order Backlogs Plunge

Let’s take another look at my December 1 post ISM Manufacturing Contracts for the 13th Consecutive Month, Order Backlogs Plunge

The ISM manufacturing report for November is dismal. The headline number didn’t change but details look worse.

Spotlight Employment and Backlogs

I put highlights on employment and backlogs because they are related.

Manufacturers are very reluctant to let workers go because it took them years to add to staff.

The manufacturers smooth out falling demand in new orders by working on backlogs. But the backlog index has plunged to 39.3 and has been declining rapidly.

Manufacturers will have a choice of reducing hours or cutting employees as the “Economy appears to be slowing dramatically.”

In the services sector, there are still price pressures, up 78 consecutive months. In the manufacturing sector, prices have been down 7 months.

These reports are miles apart.