Construction Shows Growth in December

ISM reports economic activity in the services sector, including construction, grew for the 19th month in a row in December 2021.

Institute for Supply Management (ISM)
Construction was one of the many service sectors which saw positive economic activity in December 2021.
Construction was one of the many service sectors which saw positive economic activity in December 2021.
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Economic activity in the services sector grew in December for the 19th month in a row, with the Services PMI exceeding 60% for the 10th consecutive month, according to purchasing and supply executives in the latest Services ISM Report On Business.

The ISM Services PMI index is a set of economic indicators based off surveys of private-sector companies in the services sector, including construction, which reported growth in December.

The Services PMI registered 62% for December, 7.1 percentage points below November’s all-time high reading of 69.1%. The report was issued Jan. 6 by Anthony Nieves, chair of the Institute for Supply Management (ISM) Services Business Survey Committee.

“We’re still seeing strong growth in the sector, it’s just that rate we’ve seen, those record numbers we’ve had prior to this; it’s just not sustainable. You have to have some kind of leveling off over a period of time, otherwise you may see some overheating in the economy, if anything,” Nieves says. “When you look at the economy overall, it’s still maintaining a strong rate of growth.”

According to Nieves, 16 services industries reported growth for December. The composite index indicated growth for the 19th consecutive month after a two-month contraction in April and May 2020. Although there was a pullback for most of the indexes in December, the rate of growth remains strong for the services sector, which has expanded for all but two of the last 143 months. Business Survey Committee respondents have indicated that they continue to struggle with inflation, supply chain disruptions, capacity constraints, logistical challenges and shortages of labor and materials.

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Prices

Prices remain high and clock in at the third-highest reading ever, he says. According to one survey respondent in the construction industry, high prices are hurting business.

“The escalation in costs for materials, fuel, labor, lodging and the like continues to negatively impact margins in an unsustainable direction,” the respondent says.

Construction led the sector in December with the highest number of new orders, according to the report. Comments from respondents include: “New customers added, which has led to greater sales orders and business activity” and “Increased customer activity related to infrastructure needs.”

Prices paid by services organizations for materials and services increased in December for the 55th consecutive month, with the index registering 82.5%, 0.2 percentage point higher than November. This is the index’s third-highest reading; its all-time high is 83.5% (September 2005) with the second highest (82.9%) occurring a few months ago in October.

All 18 services industries reported an increase in prices paid during the month of December, in the following order: accommodation and food services; mining; management of companies and support services; other services; wholesale trade; utilities; arts, entertainment and recreation; construction; educational services; information; transportation and warehousing; public administration; real estate, rental and leasing; retail trade; finance and insurance; health care and social assistance; professional, scientific and technical services; and agriculture, forestry, fishing and hunting. No industries reported a decrease in prices paid in December.

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Industry Performance

The 16 services industries reporting growth in December, listed in order, are: accommodation and food services; wholesale trade; construction; transportation and warehousing; management of companies and support services; retail trade; other services; health care and social assistance; arts, entertainment and recreation; utilities; professional, scientific and technical services; public administration; finance and insurance; information; real estate, rental and leasing; and educational services. The only industry reporting contraction in December is mining.

Commodities

The following commodities are up in price (the number of consecutive months the commodity is listed is indicated after each item): aluminum products; chemicals (4); chicken (4); construction contractors (6); copper products; diesel fuel (13); electrical components (11); electronic components; food and beverages; freight (8); fuel (12); gasoline* (13); labor (13); labor — construction (5); labor — technical (2); metal based products; paper products; personal protection equipment (PPE); plastic products (5); polyvinyl chloride (PVC) products (4); professional services (2); resin based products; software; steel (3); steel products* (12); sulfuric acid; transformers; and transportation costs (3). An * means the commodity has gone up and down in price.

The following commodities are down in price: dairy products, gasoline* and steel products*.

The following commodities are in short supply: appliances; computer equipment (5); construction contractors (4); construction materials (2); construction subcontractors (5); crutches (3); electronic assemblies; electronic components; labor (5); labor — temporary; laptops and desktop computers (5); microchips; packaging; pipette tips (10); plastic products (2); polyvinyl chloride (pvc) conduit; steel products (4); and suction canisters (2).

Services PMI Summary

In December, the Services PMI registered 62%, a 7.1-percentage point decrease compared to the November figure of 69.1%. The 12-month average is 62.5%, which reflects strong and sustained demand in the services sector. The December reading indicates the services sector grew for the 19th consecutive month after two months of contraction and 122 months of growth before that. A reading above 50% indicates the services sector economy is generally expanding; below 50% indicates the services sector is generally contracting.

A Services PMI above 49.2%, over time, generally indicates an expansion of the overall economy. Therefore, the December Services PMI indicates expansion for a 19th straight month following two months of contraction and a preceding period of 127 months of growth. Nieves says,

“The past relationship between the Services PMI and the overall economy indicates that the Services PMI for December (62%) corresponds to a 4.5% increase in real gross domestic product (GDP) on an annualized basis,” he says.

Employment

Employment activity in the services sector grew in December for the sixth consecutive month after contracting in June. ISM’s Services Employment Index registered 54.9% in December, down 1.6 percentage points from the November reading of 56.5%.

Comments from respondents include: “The ‘Great Resignation’ is hitting us, and we’re struggling to backfill positions in a timely manner. With fast food restaurants offering sign-on bonuses and high pay for lower-level jobs, we are having to relook at our policies and incentive programs” and “Not enough potential employees in the pipeline/employees leaving for other opportunities at higher wages.”

The 11 industries reporting an increase in employment in December, listed in order, are: retail trade; accommodation and food services; agriculture, forestry, fishing and hunting; arts, entertainment and recreation; transportation and warehousing; wholesale trade; utilities; educational services; public administration; construction; and information. The three industries that reported a reduction in employment in December are: mining; finance and insurance; and health care and social assistance.

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Supplier Deliveries

The Supplier Deliveries Index registered 63.9%, down 11.8 percentage points from the 75.7% registered in November. A reading above 50% indicates slower deliveries, while a reading below 50% indicates faster deliveries.

Comments from respondents include: “Port congestion continues to delay product deliveries” and “Shortage of raw materials is adding weeks to some orders.”

The 15 industries reporting slower deliveries in December, listed in order, are: accommodation and food services; management of companies and support services; other services; construction; health care and social assistance; mining; wholesale trade; utilities; educational services; agriculture, forestry, fishing and hunting; professional, scientific and technical services; information; public administration; transportation and warehousing; and finance and insurance. No industries reported faster supplier deliveries in December.

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Inventories

The Inventories Index contracted in December for the seventh consecutive month. The reading of 46.7% was a 1.5-percentage point decrease from the 48.2% reported in November. Of the total respondents in December, 42% indicated they do not have inventories or do not measure them.

Comments from respondents include: “Longer supplier lead times are causing us to eat into inventory” and “Constraints continue to work down inventory.”

The six industries reporting an increase in inventories in December, listed in order, are: arts, entertainment and recreation; agriculture, forestry, fishing and hunting; transportation and warehousing; management of companies and support services; health care and social assistance; and wholesale trade. The six industries reporting a decrease in inventories in December, listed in order, are: real estate, rental and leasing; finance and insurance; educational services; construction; information; and professional, scientific and technical services. Six industries reported no change in December compared to November. 

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Backlog of Orders

The ISM Services Backlog of Orders Index grew in December for the 18th time in the last 19 months. The index registered 62.3%, a 3.6-percentage point decrease compared to the previous month’s reading of 65.9%. Of the total respondents in December, 37% indicated they do not measure backlog of orders.

Respondent comments include: “Manufacturers report raw material shortages resulting in back orders; demand outpacing supply” and “Still with a steady backlog for various reasons and supply chain issues many are dealing with (extended lead times, slower logistics, pricing and the like).”

The 11 industries reporting an increase in order backlogs in December, listed in order, are: real estate, rental and leasing; accommodation and food services; construction; health care and social assistance; utilities; wholesale trade; retail trade; finance and insurance; professional, scientific and technical services; transportation and warehousing; and public administration. The six industries that reported a decrease in backlogs in December, listed in order, are: arts, entertainment and recreation; mining; management of companies and support services; agriculture, forestry, fishing and hunting; information; and educational services.  

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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 December for the 11th consecutive month. The New Export Orders Index registered 61.5%, 3.6 percentage points higher than the 57.9% reported in November. Of the total respondents in December, 76% 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 December, listed in order, are: construction; real estate, rental and leasing; transportation and warehousing; retail trade; wholesale trade; and information. The five industries reporting a decrease in new export orders in December are: mining; utilities; accommodation and food services; educational services; and health care and social assistance. Seven industries reported no change in exports orders.

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