Construction, Services Sector Continues Growth in June

The services sector, which includes construction, continues to grow although many materials remain in short supply according to the Institute for Supply Management Report on Business.

Institute for Supply Management (ISM)
Construction was one of 16 services sectors to grow in June 2021.
Construction was one of 16 services sectors to grow in June 2021.
©Bannafarsai – stock.adobe.com

While the economy continues to grow overall, employment, supply chain and material shortages linked to the pandemic are still creating challenges for the construction sector, according to the latest Services Institute for Supply Management (ISM) Report on Business.

“COVID-19 continues to cause troubles for all of our deliveries, as well as short supply a lot of materials,” one survey respondent in the construction industry told ISM. “(Shortages of) lumber, copper and steel continue, which is driving up pricing and lead times.”

The ISM Services report shows economic activity growing in June for the 13th month in a row. The report was issued by Anthony Nieves, chair of the ISM Services Business Survey Committee. The Services PMI index is a set of economic indicators based off surveys of private-sector companies.

The Services PMI registered 60.1%, which is 3.9 percentage points lower than May’s all-time high reading of 64%. Nieves says the economy remains strong and the slight dip is normal.

“The June reading indicates the 13th straight month of growth for the services sector, which has expanded for all but two of the last 137 months," he says. 

The Supplier Deliveries Index registered 68.5%, down 1.9 percentage points from May’s reading of 70.4%. Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases. The Prices Index registered 79.5%, 1.1percentage points lower than the May reading of 80.6%, indicating that prices increased in June, and at a slightly slower rate.

“According to the Services PMI, 16 services industries reported growth. The composite index indicated growth for the 13th consecutive month after a two-month contraction in April and May 2020,” Nieves says. “The rate of expansion in the services sector remains strong, despite the slight pullback in the rate of growth from the previous month’s all-time high. Challenges with materials shortages, inflation, logistics and employment resources continue to be an impediment to business conditions.”

Industries Report Growth

Construction was one of 16 services sectors to grow in June. According to the report, the services industries reporting growth in June, listed in order, are: arts, entertainment and recreation; other services; transportation and warehousing; wholesale trade; retail trade; management of companies and support services; accommodation and food services; utilities; mining; construction; health care and social assistance; public administration; information; finance and insurance; educational services; and professional, scientific and technical services. The two industries that reported a decrease in the month of June are real estate, rental and leasing; and agriculture, forestry, fishing and hunting.

Commodity Prices and Supply

Construction materials was the third highest commodity with an increase in price for June. Other commodities up in price include (The number of consecutive months the commodity is listed is indicated after each item): beef (2); chicken (2); construction materials (4); copper wire (3); diesel (7); electrical components (5); engineered wood products; food (2); freight (2); fuel (6); gasoline (7); insulation; labor (7); labor - temporary (6); lobster tails; lodging; lumber (6); metal products (2); natural gas; oriented strand board (7); packaging materials (2); pallets (2); paper; personal protective equipment (PPE); plastic; plastic products (2); polyvinyl chloride products (10); pork products; poultry; stainless steel products; steel (10); steel products (6); tires; and wood pallets.

Commodities in short supply include: chicken (2); chlorine; computer hardware (2); electrical components (3); electronic components (3); gloves (7); labor (2); labor - contingent; labor - temporary (6); lumber (3); lumber products (2); needles and syringes (7); nitrile gloves (13); pipette (4); plastic products; polyvinyl chloride; polyvinyl chloride products (5); resin-based products (2); steel products (7); vehicles (2); and wood.

“(We’re) starting to see a lot of commodity-price increases for chemicals, acidizing and cementing,” one survey respondent from the mining industry reports. “This is driven by product cost increases stemming from low production from plants.”

Employment Rate

Following five consecutive months of growth, employment activity in the services sector contracted in June. ISM’s Services Employment Index registered 49.3% in June, down 6 percentage points from the May reading of 55.3 %. Comments from respondents include: “Increasingly difficult to find qualified candidates to fill open positions” and “Employees have been somewhat slow to return to work, and there has been turnover as some pursue new opportunities in a hot job market.”

The 12 industries reporting an increase in employment in June, listed in order, are: arts, entertainment and recreation; retail trade; transportation and warehousing; other services; utilities; finance and insurance; mining; public administration; wholesale trade; health care and social assistance; professional, scientific and technical services; and construction. The two industries that reported a reduction in employment in June are real estate, rental and leasing; and educational services.

“Labor market remains tight, and wages have risen at an unprecedented rate,” one respondent in the transportation and warehousing sector reports. “We are expecting a long-term effect on pricing of services.”

Business Activity

ISM’s Business Activity Index registered 60.4% in June, a decrease of 5.8 percentage points from the May reading of 66.2 %. This represents growth for the 13th consecutive month. “Customers are ramping up their capital expenditures and awarding projects,” one survey respondent commented.

The 16 industries reporting an increase in business activity for the month of June, listed in order, are: arts, entertainment and recreation; other services; management of companies and support services; utilities; wholesale trade; transportation and warehousing; information; retail trade; construction; public administration; health care and social assistance; finance and insurance; accommodation and food services; mining; educational services; and professional, scientific and technical services. The two industries reporting a decrease in business activity in June are real estate, rental and leasing; and agriculture, forestry, fishing and hunting.

“Overall business activity in the month has been strong. We are seeing increased orders and slight improvements in backlogs,” a survey respondent in wholesale trade reports. “The primary headwinds this month continue to be very expensive ocean freight rates, increasing business costs and increasing raw-materials costs. The top line is not outrunning expenses.”

New Orders Index

The New Orders Index registered 62.1%, a decrease of 1.8 percentage points from the May reading of 63.9 %. New orders grew for the 13th consecutive month after two months of contraction and a preceding period of 128 months of expansion. Construction, however, ranked lowest in terms of growth.

The 16 industries that reported growth of new orders in June, listed in order, are: arts, entertainment and recreation; management of companies and support services; transportation and warehousing; other services; wholesale trade; retail trade; accommodation and food services; mining; utilities; health care and social assistance; information; finance and insurance; public administration; educational services; professional, scientific and technical services; and construction. The only industry reporting a decrease in new orders for the month of June is agriculture, forestry, fishing and hunting.

Supplier Deliveries Index

The Supplier Deliveries Index registered 68.5 %, which is 1.9 percentage points lower than the 70.4% reported in May. A reading above 50% indicates slower deliveries, while a reading below 50% indicates faster deliveries. Comments from respondents include: “Transportation shortages (and a) lack of drivers have slowed deliveries” and “Port congestion continues to delay product deliveries.”

The 17 industries reporting slower deliveries in June, listed in order, are: accommodation and food services; wholesale trade; construction; other services; real estate, rental and leasing; educational services; retail trade; mining; transportation and warehousing; utilities; agriculture, forestry, fishing and hunting; management of companies and support services; health care and social assistance; public administration; professional, scientific and technical services; information; and finance and insurance. No industries reported faster supplier deliveries in June.

Nieves says he doesn’t see deliveries improving in coming months due in part to a shortage of truck availability and drivers, as well as railroad delays.

Pricing Index

When it comes to pricing, construction was one of the top services sector industries to experience price increases in June.

Prices paid by service organizations for materials and services increased in June, with the index registering 79.5 %, 1.1 percentage points lower than May’s reading of 80.6 %.

The 17 services industries that reported an increase in prices paid during the month of June, listed in order, are: arts, entertainment and recreation; real estate, rental and leasing; construction; accommodation and food services; wholesale trade; utilities; transportation and warehousing; mining; educational services; finance and insurance; management of companies and support services; retail trade; information; other services; public administration; professional, scientific and technical services; and health care and social assistance.

New Export Orders

The construction industry reported the highest rate of new export orders for June. Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically-based companies grew in June for the fifth consecutive month. The New Export Orders Index registered 50.7% in June, 9.3 percentage points lower than the 60% reported in May. Of the total respondents in June, 73% indicated they either do not perform, or do not separately measure, orders for work outside of the U.S.

The six industries reporting an increase in new export orders in June, listed in order, are: construction; wholesale trade; retail trade; finance and insurance; information; and professional, scientific and technical services. The four industries reporting a decrease in exports in June are real estate, rental and leasing; management of companies and support services; other services; and accommodation and food services. 

Inventory Sentiment

The ISM Services Inventory Sentiment Index contracted in June for the third consecutive month, registering 37.2 %, which is 3.3 percentage points lower than May’s figure of 40.5 %. This indicates that respondents feel that inventories are too low when correlated to their level of business.

The four industries reporting sentiment that their inventories were too high in June are finance and insurance; utilities; health care and social assistance; and construction. The eight industries reporting a feeling that their inventories were too low in June, listed in order, are: real estate, rental and leasing; accommodation and food services; public administration; wholesale trade; agriculture, forestry, fishing and hunting; professional, scientific and technical services; transportation and warehousing; and retail trade. Six industries reported no change in inventory sentiment.

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