There’s a lot of good news in the latest Services ISM Report on Business. Construction and other services sectors are reporting positive numbers and the economy is rebounding strongly, says Anthony Nieves, chair of the Institute for Supply Management (ISM) Services Business Survey Committee.
Economic activity in the services sector grew in July for the 14th month in a row, say the nation's purchasing and supply executives in the latest monthly report. For example, in July, the Services PMI registered 64.1%, a 4-percentage point increase compared to the June figure of 60.1%. This is the highest reading since the inception of the Services PMI in 2008.
The ISM Services PMI index is a set of economic indicators based off surveys of private-sector companies in the services sector, which includes construction.
“The July reading indicates the 14th straight month of growth for the services sector, which has expanded for all but two of the last 138 months,” Nieves says.
The Supplier Deliveries Index registered 72%, up 3.5 percentage points from June's reading of 68.5%. A reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.
“Overall, the economy seems to be rebounding, we see inflation coming into the picture more and more,” he says. “The Federal Reserve says it’s transitory. It’s directly related to supply and demand, and it could be some time before supply catches up.”
The Prices Index registered 82.3%, up 2.8 percentage points from the June figure of 79.5% and its second-highest reading ever, behind September 2005, which was 83.5%.
“According to the Services PMI, 17 services industries reported growth,” he says. “The composite index indicated growth for the 14th consecutive month after a two-month contraction in April and May 2020. The rate of expansion in the services sector recorded another all-time high. The Employment Index reflected growth, even though the constrained labor pool continues to be an issue. Materials shortages, inflation and logistics continue to negatively impact the continuity of supply.”
One survey respondent from the construction industry says, “Costs have risen dramatically in the last 45 days. Lodging, fuel, travel and supplies are all rising sharply. Costs for available labor are also rising, as demand increases in a diminished labor pool.”
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COVID-19 Impact
The growing number of COVID-19 cases due to the emerging Delta variant is on the minds of leaders in the services sector, Nieves says, and how that could lead to potential lockdowns are reduced business activity.
“We have some of the respondents commenting directly on that, hoping that we won’t see any mandated shutdowns,” he says. “Right now, it doesn’t seem to be negatively impacting business. If it does spread and cause an increase in hospitalizations, that’s going to definitely have some pullback on the business level. At this point, it’s not impacting it negatively. In fact, it just seems like we see from this report we’re seeing an all-time high, with all the pent-up demand we’ve had, it just seems like the economy is really pushing forward hard.”
Nieves says he’s hopeful the variant will not impact business.
“At this time, it’s not impacting business, but the potential is there,” he says. “Hopefully, with the increased vaccination rate and the expansion to children under 12 and other variables like that, we can stifle the spread of the variant.”
Services sector business leaders discussed COVID-19 concerns in their survey responses.
“Business continues to gain speed as the economy recovers and assuming there won't be additional government-mandated lockdowns,” says a respondent in the real estate, rental and leasing sector.
Industry Performance
The 17 services industries reporting growth in July, listed in order, are: arts, entertainment and recreation; wholesale trade; accommodation and food services; management of companies and support services; retail trade; real estate, rental and leasing; transportation and warehousing; information; other services; public administration; construction; health care and social assistance; utilities; professional, scientific and technical services; educational services; finance and insurance; and mining. No industry reported a decrease in July.
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Commodities High in Price, Short on Supply
The following commodities are up in price for the month (the number of consecutive months the commodity is listed is indicated after each item): aluminum; chicken (three); construction contractors; construction subcontractors; copper products; corrugated boxes; diesel (eight); electrical components (six); electronic components; engineered wood products (two); fiber-optic cable; freight (three); fuel* (seven); gasoline (eight); labor (eight); labor - temporary (seven); lobster tails (two); lumber* (seven); metal products (three); oriented strand board (eight); packaging materials (three); plumbing products; polyvinyl chloride products (11); resin-based products; steel (11); steel products (seven); transportation rates; welding products; and wood - pallets (two).
Commodities lower in price include: fuel*; lumber*; and personal protective equipment (two).
An asterisk indicates prices moving up and down.
Commodities in short supply include: chemicals; circuit breakers; construction contractors; electrical components (four); electronic components (four); engineered wood products; fiber-optic cable; gloves (eight); labor - temporary (seven); nitrile gloves (14); pipette (five); plastic products (two); polyvinyl chloride products (six); semiconductors; sterile surgical wraps; vehicles (three); wood - pallets; and wood products.
Business Activity
ISM's Business Activity Index registered 67% in July, an increase of 6.6 percentage points from the June reading of 60.4%. This represents growth for the 14th consecutive month.
Comments from respondents include: "Pent-up demand driving transactions" and "Increased business as companies begin to fully reopen and remote workers return to offices."
The 17 industries reporting an increase in business activity for the month of July, listed in order, are: arts, entertainment and recreation; management of companies and support services; wholesale trade; retail trade; real estate, rental and leasing; accommodation and food services; information; health care and social assistance; transportation and warehousing; public administration; utilities; other services; construction; professional, scientific and technical services; finance and insurance; educational services; and mining. No industry reported a decrease in July.
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New Orders
ISM's New Orders Index registered 63.7%, an increase of 1.6 percentage points from the June reading of 62.1%. New orders grew for the 14th consecutive month after two months of contraction and a preceding period of 128 months of expansion.
Comments from respondents include: "More companies are opening for business as usual after the pandemic" and "Customer demand continues to increase."
The 16 industries that reported growth of new orders in July, listed in order, are: arts, entertainment and recreation; wholesale trade; management of companies and support services; real estate, rental and leasing; other services; public administration; accommodation and food services; health care and social assistance; utilities; retail trade; transportation and warehousing; finance and insurance; educational services; information; professional, scientific and technical services; and construction. The only industry reporting a decrease in new orders for the month of July is mining.
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Employment
Employment activity in the services sector grew in July after a month of contraction. ISM's Services Employment Index registered 53.8% in July, up 4.5 percentage points from the June reading of 49.3%.
Comments from respondents include, "Trying to aggressively fill positions. (However, it is) very difficult to get positions filled. (We are) still using agency clinical staffing. Looks like people don't want to work in the lower support service areas."
Also, "Demand is up, and it is hard to find employees."
The 13 industries reporting an increase in employment in July, listed in order, are: arts, entertainment and recreation; accommodation and food services; mining; information; retail trade; transportation and warehousing; wholesale trade; construction; management of companies and support services; public administration; utilities; professional, scientific and technical services; and finance and insurance. The three industries that reported a reduction in employment in July are: real estate, rental and leasing; educational services; and health care and social assistance.
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Supplier Deliveries
The Supplier Deliveries Index registered 72%, which is 3.5 percentage points higher than the 68.5% reported in June. A reading above 50% indicates slower deliveries, while a reading below 50% indicates faster deliveries.
Comments from respondents include: "Huge importation delays from Asia and U.S. ports and rails. The main bottleneck is due to the big ocean vessels' limited capacity and container availability, equipment in U.S. ports (and) truck-driver shortages." Also, "Shortage of logistics capacity."
The 17 industries reporting slower deliveries in July, listed in order, are: real estate, rental and leasing; accommodation and food services; arts, entertainment and recreation; wholesale trade; other services; retail trade; transportation and warehousing; information; public administration; construction; health care and social assistance; management of companies and support services; utilities; educational services; professional, scientific and technical services; mining; and finance and insurance. No industries reported faster supplier deliveries in July.
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Inventories
The Inventories Index contracted in July for the second consecutive month. The reading of 49.2% was a 0.7-percentage point decrease from the 49.9% reported in June. Of the total respondents in July, 39% indicated they do not have inventories or do not measure them. Comments from respondents include, "Distributors still operating on a lean model, and shipping delays around the world right now are causing many stockouts" and "Not enough stock on hand; shortages all across the board due to increase in usage and extended lead times."
The 10 industries reporting an increase in inventories in July, listed in order, are: arts, entertainment and recreation; agriculture, forestry, fishing and hunting; other services; finance and insurance; accommodation and food services; retail trade; utilities; wholesale trade; information; and professional, scientific and technical services. The five industries reporting a decrease in inventories in July are: real estate, rental and leasing; transportation and warehousing; mining; educational services; and health care and social assistance.
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Prices
Prices paid by service organizations for materials and services increased in July, with the index registering 82.3%, 2.8 percentage points higher than June's reading of 79.5%. This is the third month the Prices Index has surpassed 80% — the other two are September 2005 (83.5%) and May 2021 (80.6%) — since data collection for the Services ISM Report on Business began in 1997.
The 17 services industries that reported an increase in prices paid during the month of July, listed in order, are: arts, entertainment and recreation; real estate, rental and leasing; mining; retail trade; wholesale trade; utilities; construction; transportation and warehousing; finance and insurance; other services; accommodation and food services; management of companies and support services; public administration; educational services; information; health care and social assistance; and professional, scientific and technical services. No industry reported a decrease in prices for the month of July.
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Backlog of Orders
The ISM Services Backlog of Orders Index grew in July for the 13th time in the last 14 months. The index registered 63.5%; 2.3 percentage points lower than the 65.8% reported in June. Of the total respondents in July, 37% indicated they do not measure backlog of orders.
The 13 industries reporting an increase in order backlogs in July, listed in order, are: retail trade; accommodation and food services; transportation and warehousing; real estate, rental and leasing; management of companies and support services; health care and social assistance; wholesale trade; construction; information; other services; utilities; public administration; and professional, scientific and technical services. The three industries that reported a decrease in backlogs in July are: agriculture, forestry, fishing and hunting; educational services; and mining.
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New Export Orders
Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based companies grew in July for the sixth consecutive month. The New Export Orders Index registered 65.8% in July, 15.1 percentage points higher than the 50.7% reported in June and its second-highest reading ever, behind May 2007 (66%).
This is the index's second-largest single-month increase; a 17.4-percentage point gain occurred between May and June 2020. Of the total respondents in July, 70% indicated they either do not perform, or do not separately measure, orders for work outside of the U.S.
The 10 industries reporting an increase in new export orders in July, listed in order, are: real estate, rental and leasing; accommodation and food services; retail trade; construction; educational services; wholesale trade; professional, scientific and technical services; transportation and warehousing; information; and finance and insurance. The only industry reporting a decrease in exports in July is public administration. Seven industries reported no change in July.
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Imports
The Imports Index grew at a slower rate in July, as it registered 51.6%, 6.6 percentage points lower than June's figure of 58.2%. Seventy-six percent of respondents reported that they do not use, or do not track the use of, imported materials.
The five industries reporting an increase in imports for the month of July are: educational services; wholesale trade; finance and insurance; utilities; and professional, scientific and technical services. the two industries reporting a decrease in imports in july are: accommodation and food services; and health care and social assistance. Eleven industries reported no change in imports in July.
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Inventory Sentiment
The ISM Services Inventory Sentiment Index contracted in July for the fourth consecutive month, registering 40.3%, which is 3.1 percentage points higher than June's figure of 37.2%. This indicates that respondents feel that inventories are too low when correlated to their level of business.
The five industries reporting sentiment that their inventories were too high in July are: arts, entertainment and recreation; mining; other services; utilities; and health care and social assistance. The 10 industries reporting a feeling that their inventories were too low in July, listed in order, are: accommodation and food services; management of companies and support services; retail trade; real estate, rental and leasing; professional, scientific and technical services; transportation and warehousing; wholesale trade; construction; public administration; and information.
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