Services PMI™ at 56.9%; August 2020 Services ISM® Report On Business®

Business Activity Index at 62.4%; New Orders Index at 56.8%; Employment Index at 47.9%; Supplier Deliveries Index at 60.5%

TEMPE, Ariz., Sept. 3, 2020 /PRNewswire/ — Economic activity in the services sector grew in August for the third month in a row, say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®.

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: “The Services PMI^™ (formerly the Non-Manufacturing NMI^®) registered 56.9 percent, 1.2 percentage points lower than the July reading of 58.1 percent. This reading represents growth in the services sector for the third straight month and the 125th time in the last 127 months, with the exception of April’s and May’s contraction.

“The Supplier Deliveries Index registered 60.5 percent, up 5.3 percentage points from July’s reading of 55.2 percent. Supplier Deliveries is the only ISM^®Report On Business^® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases. The higher readings for supplier deliveries in the four months prior to July were primarily a product of supply problems related to the coronavirus (COVID-19) pandemic. Supplier deliveries are now more closely correlating to current supply and demand.

“The Prices Index figure of 64.2 percent is 6.6 percentage points higher than the July reading of 57.6 percent, indicating that prices increased in August at a faster rate. According to the Services PMI^™, 15 services industries reported growth. The composite index indicated growth for the third consecutive month after contraction in April and May. The sector’s previous period of contraction was in November and December 2009, with Services PMI^™ readings of 49.5 percent and 49.7 percent, respectively. Respondents’ comments are mostly optimistic and industry specific about business conditions and the economy as businesses are starting to reopen. Industries that have not reopened remain concerned about the ongoing uncertainty. There is a challenge with capacity and logistics due to the pandemic and the impact on deliveries and order fulfillment,” says Nieves.

INDUSTRY PERFORMANCE
The 15 services industries reporting growth in August — listed in order — are: Arts, Entertainment & Recreation; Health Care & Social Assistance; Utilities; Accommodation & Food Services; Transportation & Warehousing; Wholesale Trade; Construction; Retail Trade; Management of Companies & Support Services; Public Administration; Finance & Insurance; Educational Services; Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; and Professional, Scientific & Technical Services. The three industries reporting a decrease in August are: Mining; Information; and Other Services.

WHAT RESPONDENTS ARE SAYING

• “Our business activity is now thriving again, after modifications to our operations. While supply disruptions remain common, very critical items are more stable than in previous months. Tariff threats have caused more concern than in previous months due to actions in aluminum, and the rapid rise in lumber costs for construction expansions.” (Accommodation & Food Services)
• “Overall, we are seeing improvement in the level of activity in the short term. Backlog of orders is inconsistent.” (Construction)
• “Continuing pandemic uncertainties are challenging abilities to prepare for fall semester activities, resumption of in-person instruction and the research enterprise. Recent decision to provide all undergraduate instruction online has shifted priorities significantly, including reduced need for testing and increased need for remote teaching infrastructure.” (Educational Services)
• “Revenue challenges for our customers still remain a primary challenge.” (Finance & Insurance)
• “Continuing to build our ancillary clinic volume as well as elective surgical cases since ceasing these services from mid-March through May 1.” (Health Care & Social Assistance)
• “Clear signs of gearing up manufacturing and distribution for an extraordinary e-commerce Christmas. Brick-and-mortar likely closed to crowds. Also, hearing the other shoe is about to drop, probably in first quarter of 2021, on U.S.-China trade. “Get out of China now” is resonating.” (Information)
• “We are significantly down from the pre-COVID-19 level. While month-over-month business activity is picking up, the pace is very slow and very slight.” (Wholesale Trade)
• “Increase in service- and work-order requests are signs of economic improvement as companies reopen and begin to ramp up employment activity.” (Professional, Scientific & Technical Services)
• “The coronavirus continues to be a challenge for the business as we pivot and adapt to these new conditions. Sales have been affected in the retail space with less foot traffic in our brick-and-mortar stores, while e-commerce sales have increased significantly. We are starting to see sales level out in this new environment from the pandemic.” (Retail Trade)
• “Business recovery continues as the country reopens.” (Real Estate, Rental & Leasing)

Services ISM^® Report On Business^® data is seasonally adjusted for the Business Activity, New Orders, Prices and Employment indexes. Manufacturing ISM^® Report On Business^® data is seasonally adjusted for New Orders, Production, Employment and Inventories indexes.

**Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE, AND IN SHORT SUPPLY

Commodities Up in Price
Cleaning Products (6); Copper Products; Construction; COVID-19 Testing Kits; Dairy; Diesel Fuel* (3); Food Products; Fuel (3); Hardware; Janitorial Chemicals; Janitorial Supplies; Labor; Lumber Products (4); Medical Supplies (7); N95 Masks; Oriented Strand Board (OSB) (2); Paper Products; Personal Protective Equipment (PPE) (7); PPE — Gloves (6); PPE — Gowns (6); PPE — Masks; Pharmaceuticals; Plastic Products; Shingles; Steel Products; and Transportation.

Commodities Down in Price
Computer Hardware; Diesel Fuel*; Gasoline; and Hand Sanitizer.

Commodities in Short Supply
Alcohol; Bouffant Caps (2); Disinfectant Wipes (4); Fiber Optic Cable; Hand Sanitizer (6); Labor (3); Labor – Construction (3); Labor – Temporary; Lumber; N95 Masks (6); Nitrile Gloves (3); Personal Protective Equipment (PPE) (7); PPE — Gloves (5); PPE — Gowns (5); PPE — Masks (6); Plastic Products; Powered Air-Purifying Respirator (PAPR) Systems and Hoods; Sanitary Supplies (5); Steel Products; and Wipes (3).

Note: The number of consecutive months the commodity is listed is indicated after each item.

*Indicates both up and down in price.

AUGUST 2020 SERVICES INDEX SUMMARIES

Services PMI^™
In August, the Services PMI^™ registered 56.9 percent, 1.2 percentage points lower than July’s figure of 58.1 percent. The reading indicates the services sector grew for the third consecutive month after two months of contraction and 122 months of growth before that. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates the services sector is generally contracting.

A Services PMI^™ above 48.5 percent, over time, generally indicates an expansion of the overall economy. Therefore, the August Services PMI™ indicates expansion for a third straight month following two months of contraction and a preceding period of 128 months of growth. Nieves says, “The past relationship between the Services PMI^™ and the overall economy indicates that the Services PMI^™ for August (56.9 percent) corresponds to a 2.8-percent increase in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI™ HISTORY

Business Activity
ISM^®‘s Business Activity Index registered 62.4 percent in August, a decrease of 4.8 percentage points from the July reading of 67.2 percent. This represents growth for the third consecutive month. Comments from respondents include: “More customers are returning to work” and “New business has increased our level of business activity.”

The 13 industries reporting an increase in business activity for the month of August — listed in order — are: Arts, Entertainment & Recreation; Utilities; Management of Companies & Support Services; Real Estate, Rental & Leasing; Health Care & Social Assistance; Wholesale Trade; Public Administration; Construction; Transportation & Warehousing; Finance & Insurance; Educational Services; Accommodation & Food Services; and Retail Trade. The three industries reporting a decrease in business activity for the month of August are: Agriculture, Forestry, Fishing & Hunting; Information; and Mining.

New Orders
ISM^®‘s New Orders Index registered 56.8 percent, a decrease of 10.9 percentage points from the July reading of 67.7 percent. New orders grew for the third consecutive month after two months of contraction and a preceding period of 128 consecutive months of expansion. Comments from respondents include: “Preparation of reopening” and “Recovery of business from historic lows.”

The 12 industries reporting growth of new orders in August — listed in order — are: Arts, Entertainment & Recreation; Utilities; Public Administration; Accommodation & Food Services; Health Care & Social Assistance; Educational Services; Management of Companies & Support Services; Wholesale Trade; Finance & Insurance; Retail Trade; Transportation & Warehousing; and Construction. The five industries reporting contraction in August are: Mining; Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Information; and Professional, Scientific & Technical Services.

Employment
Employment activity in the services sector contracted in August for the sixth month in a row following 72 consecutive months of growth. ISM^®‘s Services Employment Index registered 47.9 percent, up 5.8 percentage points from the July reading of 42.1 percent. Comments from respondents include: “Attrition has taken employees; hiring is authorized, but slow to materialize” and “The need for employees is greater, but we are having a difficult time filling open positions.”

The eight industries reporting an increase in employment in August — listed in order — are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Wholesale Trade; Health Care & Social Assistance; Transportation & Warehousing; Utilities; and Professional, Scientific & Technical Services. The nine industries that reported a reduction in employment in August — listed in order — are: Mining; Educational Services; Other Services; Information; Real Estate, Rental & Leasing; Public Administration; Management of Companies & Support Services; Retail Trade; and Finance & Insurance.

Supplier Deliveries
The Supplier Deliveries Index registered 60.5 percent, which is 5.3 percentage points higher than the 55.2 percent reported in July. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. Comments from respondents include: “Longer lead times for a variety of items, as well as more back orders, sometimes extending for months at a time” and “Factories operating below capacity.”

The 16 industries reporting slower deliveries in August — listed in order — are: Retail Trade; Agriculture, Forestry, Fishing & Hunting; Construction; Transportation & Warehousing; Health Care & Social Assistance; Other Services; Accommodation & Food Services; Real Estate, Rental & Leasing; Educational Services; Information; Public Administration; Management of Companies & Support Services; Wholesale Trade; Finance & Insurance; Utilities; and Professional, Scientific & Technical Services. No industry reported faster deliveries in August.

Inventories
The Inventories Index contracted in August after two months of growth, registering 45.8 percent, a 6.2-percentage point decrease from the 52 percent reported in July. Of the total respondents in August, 46 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Using materials, so inventory levels have decreased” and “Continuing to work through stock to reduce levels.”

The six industries reporting an increase in inventories in August — listed in order — are: Educational Services; Finance & Insurance; Health Care & Social Assistance; Retail Trade; Utilities; and Information. The four industries reporting a decrease in inventories in August are: Real Estate, Rental & Leasing; Accommodation & Food Services; Wholesale Trade; and Construction. Eight industries reported no change in August compared to July.

Prices
Prices paid by service organizations for materials and services increased in August, with the index registering 64.2 percent. This is 6.6 percentage points higher than the 57.6 percent reported in July. This is the highest reading since November 2018, when the index registered 64.6 percent. 

The 14 service industries that reported an increase in prices paid during the month of August — listed in order — are: Accommodation & Food Services; Real Estate, Rental & Leasing; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Educational Services; Professional, Scientific & Technical Services; Management of Companies & Support Services; Transportation & Warehousing; Mining; Utilities; Finance & Insurance; Construction; and Public Administration. The three industries that reported a decrease in prices in August are: Information; Retail Trade; and Other Services.

NOTE: Commodities reported as up in price and down in price are listed in the commodities section of this report.

Backlog of Orders
The ISM^® Services Backlog of Orders Index grew in August for the third consecutive month. The index registered 56.6 percent; 0.7 percentage point higher than the 55.9 percent reported in July. Of the total respondents in August, 42 percent indicated they do not measure backlog of orders.

The eight industries reporting an increase in order backlogs in August — listed in order — are: Accommodation & Food Services; Real Estate, Rental & Leasing; Educational Services; Health Care & Social Assistance; Utilities; Public Administration; Wholesale Trade; and Construction. The five industries that reported a decrease in backlogs in August are: Arts, Entertainment & Recreation; Other Services; Agriculture, Forestry, Fishing & Hunting; Mining; and Professional, Scientific & Technical Services.

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 August after one month of contraction. The New Export Orders Index registered 55.8 percent in August, which is 6.5 percentage points higher than the 49.3 percent reported in July. Of the total respondents in August, 81 percent indicated they either do not perform, or do not separately measure, orders for work outside of the U.S.

The five industries reporting an increase in new export orders in August are: Real Estate, Rental & Leasing; Utilities; Construction; Wholesale Trade; and Finance & Insurance. The four industries that reported a decrease in exports in August are: Other Services; Information; Management of Companies & Support Services; and Retail Trade. Nine industries reported no change in August.

Imports
The Services Imports Index grew after one month of contraction, as the index registered 50.8 percent in August, 4.5 percentage points higher than July’s figure of 46.3 percent. Sixty-nine percent of respondents reported that they do not use, or do not track the use of, imported materials.

The seven industries reporting an increase in imports for the month of August — listed in order — are: Wholesale Trade; Accommodation & Food Services; Retail Trade; Finance & Insurance; Health Care & Social Assistance; Educational Services; and Transportation & Warehousing. The six industries that reported a decrease in imports in August — listed in order — are: Other Services; Mining; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Information; and Professional, Scientific & Technical Services.

Inventory Sentiment 
The ISM^® Services Inventory Sentiment Index in August registered 52.5 percent, which is 2.5 percentage points higher than the 50-percent reading in July. This indicates that respondents believe their inventories are too high.

The seven industries reporting sentiment that their inventories were too high in August — listed in order — are: Arts, Entertainment & Recreation; Mining; Other Services; Information; Wholesale Trade; Finance & Insurance; and Utilities. The five industries reporting a feeling that their inventories were too low in August are: Accommodation & Food Services; Educational Services; Transportation & Warehousing; Construction; and Professional, Scientific & Technical Services. Six industries reported no change in inventory sentiment in August.

About This Report
DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report’s information reflects the entire U.S., while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of August 2020.

The data presented herein is obtained from a survey of supply executives in the services sector based on information they have collected within their respective organizations. ISM^® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation
The Services ISM^® Report On Business^® (formerly the Non-Manufacturing ISM^® Report On Business^®) is based on data compiled from purchasing and supply executives nationwide. Membership of the Services Business Survey Committee (formerly Non-Manufacturing Business Survey Committee) is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). The Services Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Public Administration; and Other Services (services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating Services).

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change, Inventory Sentiment, Imports, Prices, Employment and Supplier Deliveries), this report shows the percentage reporting each response and the diffusion index. Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The Services PMI^™ is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

A Services PMI^™ above 48.5 percent, over time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 48.5 percent, it is generally declining. The distance from 50 percent or 48.5 percent is indicative of the strength of the expansion or decline.

The Services ISM^® Report On Business^® survey is sent out to Services Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on U.S. operations for the current month. ISM^® receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses to give the most accurate picture of current business activity. ISM^® then compiles the report for release on the third business day of the following month.

The industries reporting growth, as indicated in the Services ISM^® Report On Business^® monthly report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

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About Institute for Supply Management^®
Institute for Supply Management^® (ISM^®) serves supply management professionals in more than 90 countries. Its 50,000 members around the world manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM leads the profession through the ISM Report On Business^®, its highly regarded certification programs and the ISM Mastery Model^®. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

The full text version of the Services ISM® Report On Business® is posted on ISM®’s website at www.ismrob.org on the third business day* of every month after 10:00 a.m. ET.

The next Services ISM^® Report On Business^® featuring September 2020 data will be released at 10:00 a.m. ET on Monday, October 5, 2020.

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SOURCE Institute for Supply Management