Services PMI™ at 57.2%; December 2020 Services ISM® Report On Business®

Business Activity Index at 59.4%; New Orders Index at 58.5%; Employment Index at 48.2%; Supplier Deliveries Index at 62.8%

TEMPE, Ariz., Jan. 7, 2021 /PRNewswire/ — Economic activity in the services sector grew in December for the seventh 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^™ registered 57.2 percent, 1.3 percentage points higher than the November reading of 55.9 percent. This reading represents a seventh straight month of growth for the services sector, which has expanded for all but two of the last 131 months.

“The Supplier Deliveries Index registered 62.8 percent, up 5.8 percentage points from November’s reading of 57 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 Prices Index figure of 64.8 percent is 1.3 percentage points lower than the November reading of 66.1 percent, indicating that prices increased in December, and at a slower rate. According to the Services PMI^™, 14 services industries reported growth. The composite index indicated growth for the seventh consecutive month after a two-month contraction in April and May. In December, a slight uptick in the rate of services-sector growth continued. Respondents’ comments are mixed about business conditions and the economy. Various local- and state-level COVID-19 shutdowns continue to negatively impact companies and industries. Applicable human resources, production capacity and logistics have been more constrained than during the previous month. Most respondents are cautiously optimistic about business conditions with the recent approval and impending distribution of vaccines,” says Nieves.

INDUSTRY PERFORMANCE
The 14 services industries reporting growth in December — listed in order — are: Management of Companies & Support Services; Wholesale Trade; Retail Trade; Health Care & Social Assistance; Transportation & Warehousing; Finance & Insurance; Utilities; Agriculture, Forestry, Fishing & Hunting; Information; Professional, Scientific & Technical Services; Mining; Public Administration; Construction; and Educational Services. The four industries reporting contraction in December are: Arts, Entertainment & Recreation; Accommodation & Food Services; Other Services; and Real Estate, Rental & Leasing.

WHAT RESPONDENTS ARE SAYING

• “Starting to see demand weakening as states go back to shut down. Will look to see business resume in late first quarter, as vaccine distribution takes place.” (Accommodation & Food Services)
• “Lack of labor continues to be a significant drag on the business. We have plenty of work but are now considering rejecting some orders due to shrinking capacity.” (Construction)
• “Continued local and state shutdowns negatively impacting a variety of operations. Notably, shipping delays are beginning to affect operations as [parcel companies] all struggle under the strain of holiday-shipping demand. Construction and services continue to also be challenged, as COVID-19 infections become more pervasive with workers calling out to quarantine, etc.” (Educational Services)
• “COVID-19 continues to be an impediment to normalized business operations, and the pandemic is not abating — only worsening as [we] get into the winter months. Stocks of personal protective equipment [PPE] are adequate but not sufficient for most categories, with the exception of nitrile exam gloves, which are in extremely short supply internationally. Our hospital system achieved 94- percent capacity in our intensive care units and continued to hover around that number with new admissions, fatalities and discharges on a daily basis. This situation continues to impede normal revenue-generating surgical volumes.” (Health Care & Social Assistance)
• “Deliveries as a whole, are slowing down considerably. Between COVID-19, the holidays, and inclement weather of late, the remainder of [2020] stands to be very challenging regarding maintaining adequate materials for operations.” (Professional, Scientific & Technical Services)
• “Business quite good, all things considered, although below the original 2020 planned forecast.” (Real Estate, Rental & Leasing)
• “Business conditions are improving with increased volume, but [growth has] slowed slightly due to COVID-19 shutdowns in some states.” (Transportation & Warehousing)
• “The general business conditions are steady/stable. Expecting a very slight slowdown to end the year, with a rebound in mid-January.” (Utilities)
• “We have seen a growing number of product shortages and increased lead times during the last quarter.” (Wholesale Trade)

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
Copper Products; Copper Wire; Construction Contractors (3); Diesel; Disinfectant Supplies (4); Exam Gloves (3); Freight; Gasoline; Gloves; Labor; Labor — Construction; Medical Supplies (11); Nitrile Gloves (4); Oriented Strand Board; Personal Protective Equipment (PPE) (11); PPE — Gloves (3); PPE — Gowns (3); Plastic Products (3); PVC Products (4); Shingles; and Steel (4).

Commodities Down in Price
None.

Commodities in Short Supply
Construction Contractors (3); Disinfectant Supplies (2); Electrical Components; Exam Gloves (3); Gloves; Labor; N95 Masks (10); Needles & Syringes; Nitrile Gloves (7); Personal Protective Equipment (PPE) (11); PPE — Gloves (9); PPE — Gowns (9); Plastic Products; PVC Products (3); Steel; Steel Products; and Sterile Water.

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

DECEMBER 2020 SERVICES INDEX SUMMARIES

Services PMI^™

In December, the Services PMI^™ registered 57.2 percent, 1.3 percentage points higher than November’s figure of 55.9 percent. This reading indicates the services sector grew for the seventh 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 December Services PMI™ indicates expansion for a seventh 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 December (57.2 percent) corresponds to a 2.9-percent increase in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI™ HISTORY

Business Activity
ISM^®‘s Business Activity Index registered 59.4 percent in December, an increase of 1.4 percentage points from the November reading of 58 percent. This represents growth for the seventh consecutive month. Comments from respondents include: “Indications are showing potential improvement, but many people are working from home, restricting demand” and “Seasonal sales have increased business activity as expected.”

The 11 industries reporting an increase in business activity for the month of December — listed in order — are: Management of Companies & Support Services; Health Care & Social Assistance; Transportation & Warehousing; Information; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Mining; Wholesale Trade; Finance & Insurance; Professional, Scientific & Technical Services; and Utilities. The five industries reporting a decrease are: Other Services; Accommodation & Food Services; Real Estate, Rental & Leasing; Construction; and Educational Services.

New Orders
ISM^®‘s New Orders Index registered 58.5 percent, an increase of 1.3 percentage points from the November reading of 57.2 percent. New orders grew for the seventh consecutive month after two months of contraction and a preceding period of 128 months of expansion. Comments from respondents include: “We are in peak season, and revenue seems pretty consistent” and “End-of-year spending.”

The 10 industries reporting growth of new orders in December — listed in order — are: Management of Companies & Support Services; Retail Trade; Health Care & Social Assistance; Transportation & Warehousing; Wholesale Trade; Finance & Insurance; Information; Construction; Public Administration; and Professional, Scientific & Technical Services. The five industries reporting a decrease in December are: Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; and Other Services.

Employment
Employment activity in the services sector contracted in December after three consecutive months of growth. (After 72 straight pre-pandemic months of expansion, the index contracted from March through August.) ISM^®‘s Services Employment Index registered 48.2 percent in December, down 3.3 percentage points from the November reading of 51.5 percent. Comments from respondents include: “Less staff needed in restaurants due to restrictions” and “We had to reduce our workforce even further.”

The four industries reporting an increase in employment in December are: Management of Companies & Support Services; Wholesale Trade; Utilities; and Finance & Insurance. The 10 industries that reported a reduction in employment in December — listed in order — are: Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Mining; Accommodation & Food Services; Professional, Scientific & Technical Services; Transportation & Warehousing; Other Services; Information; Construction; and Health Care & Social Assistance.

Supplier Deliveries
The Supplier Deliveries Index registered 62.8 percent, which is 5.8 percentage points higher than the 57 percent reported in November. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. Comments from respondents include: “Suppliers impacted by supply chain disruptions for core components and increased ordering of certain tools and equipment,” “General freight delays given volume constraint issues with parcel delivery,” and “End-of-year push in conjunction with holidays is causing an increased strain on [the] shipping industry.”

The 17 industries reporting slower deliveries in December — listed in order — are: Wholesale Trade; Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Retail Trade; Professional, Scientific & Technical Services; Health Care & Social Assistance; Utilities; Accommodation & Food Services; Mining; Construction; Other Services; Transportation & Warehousing; Educational Services; Public Administration; Finance & Insurance; and Information. No industry reported faster deliveries in December.

Inventories
The Inventories Index grew substantially in December after a month of contraction. The reading of 58.2 percent was an 8.9-percentage point increase from the 49.3 percent reported in November. Of the total respondents in December, 46 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Building inventory when and where possible to mitigate supply chain risks like supplier plant disruptions, carrier-related delays and the holidays; however, inventories remain fairly steady” and “Inventories were previously too low.”

The 11 industries reporting an increase in inventories in December — listed in order — are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Retail Trade; Real Estate, Rental & Leasing; Utilities; Health Care & Social Assistance; Wholesale Trade; Public Administration; Professional, Scientific & Technical Services; and Educational Services. The five industries reporting a decrease in inventories in December are: Other Services; Mining; Construction; Transportation & Warehousing; and Information.

Prices
Prices paid by service organizations for materials and services increased in December, with the index registering 64.8 percent. This is 1.3 percentage points lower than the 66.1 percent reported in November.

The 12 Services industries that reported an increase in prices paid during the month of December — listed in order — are: Accommodation & Food Services; Transportation & Warehousing; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Finance & Insurance; Management of Companies & Support Services; Real Estate, Rental & Leasing; Mining; Public Administration; Utilities; and Professional, Scientific & Technical Services. The two industries that reported a decrease in prices paid for December are: Other Services; and Information.

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 contracted in December after six months of growth. The index registered 48.7 percent, 2 percentage points lower than the 50.7 percent reported in November. Of the total respondents in December, 44 percent indicated they do not measure backlog of orders.

The seven industries reporting an increase in order backlogs in December — listed in order — are: Construction; Transportation & Warehousing; Retail Trade; Health Care & Social Assistance; Wholesale Trade; Finance & Insurance; and Professional, Scientific & Technical Services. The seven industries that reported a decrease in backlogs in December — listed in order — are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Other Services; Public Administration; Educational Services; and Utilities.

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 fifth consecutive month. The New Export Orders Index registered 57.3 percent in December, which is 6.9 percentage points higher than the 50.4 percent reported in November. Of the total respondents in December, 74 percent indicated they either do not perform, or do not separately measure, orders for work outside of the U.S.

The seven industries reporting an increase in new export orders in December — listed in order — are: Transportation & Warehousing; Educational Services; Real Estate, Rental & Leasing; Finance & Insurance; Wholesale Trade; Professional, Scientific & Technical Services; and Information. The three industries that reported a decrease in exports in December are: Other Services; Utilities; and Health Care & Social Assistance. Eight industries reported no change in December.

Imports
The Imports Index grew at a slower rate in December, as it registered 51.8 percent, 3.2 percentage points lower than November’s figure of 55 percent. Seventy-two percent of respondents reported that they do not use, or do not track the use of, imported materials.

The four industries reporting an increase in imports for the month of December are: Transportation & Warehousing; Wholesale Trade; Information; and Utilities. The two industries reporting a decrease in imports in December are: Mining; and Accommodation & Food Services. Twelve industries reported no change.

Inventory Sentiment
The ISM^® Services Inventory Sentiment Index in December registered 47.7 percent, which is 2.2 percentage points lower than the 49.9 percent reading in November. This is only the third month — the others are March and November 2020 — in which respondents indicated they believe their inventories are too low since the inception of the Services (formerly Non-Manufacturing) Report On Business^® in 1997.

The six industries reporting sentiment that their inventories were too high in December — listed in order — are: Arts, Entertainment & Recreation; Mining; Other Services; Utilities; Educational Services; and Health Care & Social Assistance. The four industries reporting a feeling that their inventories were too low in December are: Real Estate, Rental & Leasing; Public Administration; Transportation & Warehousing; and Professional, Scientific & Technical Services. Eight industries reported no change in inventory sentiment in December.

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 December 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 January 2021 data will be released at 10:00 a.m. ET on Wednesday, February 3, 2021.

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SOURCE Institute for Supply Management