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ISM report points to Services sector growth in January

Services economy activity solidly kicked off 2022, according to the January edition of the Services ISM Report on Business, which was issued today by the Institute for Supply Management (ISM).

The reading for the report’s key indicator—the Services PMI (formerly the Non-Manufacturing PMI)—at 59.9 (a reading of 50 or higher signals growth)—was off 2.4% compared to December’s 62.3. The Services PMI grew for the 20th consecutive month, with services sector growth intact for 142 of the last 144 months through December.

The January Services PMI is 2.7% below the 12-month average of 62.6, with November 2021’s 68.4 and February 2021’s 55.9 representing the high and low points over the last 12 months, respectively.

ISM reported that 15 of the services sectors it tracks saw gains in January, including: Construction; Retail Trade; Health Care & Social Assistance; Public Administration; Real Estate, Rental & Leasing; Utilities; Professional, Scientific & Technical Services; Other Services; Educational Services; Finance & Insurance; Mining; Management of Companies & Support Services; Transportation & Warehousing; Wholesale Trade; and Accommodation & Food Services. The three industries with declines were: Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; and Information.

The report’s equally weighted subindexes that directly factor into the NMI saw across-the-board declines in January, including:

-Business activity/production, at 59.9, fell 8.4%, growing, at a slower rate, for the 20th consecutive month, with eight services sectors reporting growth;
-New orders, at 61.7, saw a mild 0.4%, growing, at a slower rate, for the 20th consecutive month, with 10 services sectors reporting growth;
-Employment, at 52.3, decreased 2.4%, growing, at a slower rate, for the 7th consecutive month, with five services sectors reporting growth; and
-Supplier deliveries—at 65.7 (a reading above 50 percent indicates slower deliveries)—seeing a 1.8% gain compared to December, slowing, at a faster rate, for the 32nd consecutive month

Comments from ISM member panelists included in the report highlighted various issues being seen in the services sector, including: labor, the pandemic, and business levels, among others.

“Supply constraints and outages persist,” said an Accommodation & Food Services respondent. “With mechanical component parts, the problems are severe. We are finding widespread depletion of field service part inventories to sustain factory production of new product orders. The inability to satisfy replacement part demand creates tremendous operational risk.”

An information services respondent explained that January has been tough, as product quantities intended for holiday sales are just now coming in, with inventories of seasonal products are (very) high and now dormant for nine months, cash flow is down, and new orders are delayed.

“Omicron is keeping between 20 and 25 percent of our workforce out daily,” the panelist said. “Inflation is a concern.”

Tony Nieves, Chair of ISM’s Management Services Business Survey Committee said in an interview that even though there was a decline off of December, the Services PMI reading is still strong.

“We had 15 industries reflecting growth, and when you look at business activity, that is a good number, considering only eight industries saw growth,” he said. “Many [panelists] said things remained the same versus those that actually went down. The new orders pipeline remained strong. The employment and labor pool restriction reflects that, too, and Omicron has affected that as well. We are seeing that affect certain industries, as it relates to some of their activity levels because of the variant and the restrictive labor pool.”

He added a there was a bit of post-holiday pullback that was more aligned with what has been seen historically, but it could not be viewed in the same way over the last year, due to the pent-up demand on the heels of pandemic-related lockdowns.

“Things are looking more traditional now, in terms of the trends we see with the services sector,” he said.

While the backlog of orders tally fell 4.9%, to 57.4 (growing, at a slower rate, for the 13th consecutive month), Nieves noted that while there was an easing in that reading that does not reflect an improvement in supply chain and logistics conditions.

“There are still the same logistics- and supply chain-related challenges and impairments,” he said.

For exports and imports, Nieves said that the 15.6% decline in new export orders, to 45.9, is attributed to not only labor issues but also travel complexities, with Omicron impacting the U.S. and many other countries, coupled with still-high prices related to inflation. January imports came down 4.4%, to 51.1, which Nieves said is expected to continue, due to the Lunar New Year, with ISM panel sentiment matching up with the current inventory issues not correlating back to busines levels.

Looking ahead, Nieves said the labor and employment situation in the services sector requires a watchful eye for the foreseeable future.

“Hopefully, we can see some easing in the supply chain more so than what we have seen in the past,” he said. “It is still not where it needs to be. We have this demand-pull inflation and part of it is the difficulty in obtaining goods.”

Article Topics

Institute for Supply Management
Services Economy
Services PMI
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About the Author

Jeff Berman's avatar
Jeff Berman
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review and is a contributor to Robotics 24/7. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis.
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