Services PMI® at 66.7%; October 2021 Services ISM® Report On Business®

TEMPE, Ariz., Nov. 3, 2021 /PRNewswire/ — Economic activity in the services sector grew in October for the 17th month in a row — with the rate of expansion setting a record for the fourth time in 2021 — 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: “In October, the Services PMI^® registered another all-time high of 66.7 percent, 4.8 percentage points above September’s reading of 61.9 percent. This figure exceeds the former all-time high of 64.1 percent in July; previous records were set in May (64 percent) and March (63.7 percent). The data quickly explains the elevated Services PMI^® reading, as two of the four equally weighted subindexes that directly factor into the composite index set all-time highs: The Business Activity Index reached 69.8 percent, an increase of 7.5 percentage points compared to the reading of 62.3 percent in September, and the New Orders Index hit 69.7 percent, up 6.2 percentage points from last month’s figure of 63.5 percent. (The other two subindexes are Employment and Supplier Deliveries, both also in expansion territory in October.)

“The Supplier Deliveries Index registered 75.7 percent, up 6.9 percentage points from September’s reading of 68.8 percent. The all-time high is 78.3 percent, recorded in April 2020. (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.)

“Demand shows no signs of slowing, reflected by two other subindexes in October. The Backlog of Orders Index set a record of 67.3 percent, 5.4 percentage points higher than the September reading of 61.9 percent; the previous high of 65.8 percent was set in June. The Prices Index reached its second-highest reading ever at 82.9 percent, up 5.4 percentage points from the September figure of 77.5 percent and exceeded only by September 2005 (83.5 percent). In response, services businesses are struggling to stock up, as the Inventories Index (42.2 percent, down 3.9 percentage points from September’s reading of 46.1 percent) and the Inventory Sentiment Index (37.3 percent, a decrease of 9 percentage points from 46.3 percent the previous month) were near record lows in October.

Nieves continues, “According to the Services PMI^®, all 18 services industries reported growth. The composite index indicated growth for the 17th consecutive month after a two-month contraction in April and May 2020. In October, strong growth continued for the services sector, which has expanded for all but two of the last 141 months. However, ongoing challenges — including supply chain disruptions and shortages of labor and materials — are constraining capacity and impacting overall business conditions.”

INDUSTRY PERFORMANCE
The 18 services industries reporting growth in October — listed in order — are: Retail Trade; Transportation & Warehousing; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Other Services; Utilities; Construction; Information; Educational Services; Wholesale Trade; Accommodation & Food Services; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Finance & Insurance; Professional, Scientific & Technical Services; Public Administration; and Mining.

WHAT RESPONDENTS ARE SAYING

• “Manufacturers are failing to keep up with orders, and backlogs continue to grow. We’ve seen proposed pricing increases of more than 20 percent in areas of equipment manufacturing. This is extremely concerning.” [Accommodation & Food Services]
• “Container delays are causing serious implications for our supply chain.” [Agriculture, Forestry, Fishing & Hunting]
• “Supply chain disruptions continue to roil new residential construction. Material and skilled labor shortages are lengthening cycle times and forcing substitutions.” [Construction]
• “Supply chain backorders. We have to forecast six months out for basic supplies and one year for larger international equipment orders. Ivy [League] or elite higher education institutions will fare better than smaller schools, as applicants find alternative sources of education.” [Educational Services]
• “Gross revenue continues to be strong due to high patient volume and inpatient census. At the same time, staffing continues to be a challenge and is driving significant cost overruns. To ensure we have adequate staff to care for increased patient demand, we are reliant on higher levels of temporary staff and incentivized staffing programs.” [Health Care & Social Assistance]
• “Everything — from sales demand to orders to manufacturers, domestic and international — is ramping up. The international freight crisis is a critical problem, from capacity to transit times with port delays and costs now reaching three times pre-pandemic levels. Fourth-quarter holiday peak sales are at risk for delayed supply. Labor is still an issue, as it’s hard to find and get people who want to work, especially in services, trucking and warehouse fulfillment. Profitability outlook is down, thanks to rising costs, lower sales and reduced on-time supply.” [Information]
• “While new opportunities continue to present themselves, we are turning work away due to delayed shipments from suppliers and the general lack of new workers.” [Management of Companies & Support Services]
• “Positive indications that have been building in the last couple of months are continuing into the beginning of this quarter.” [Professional, Scientific & Technical Services]
• “Deliveries are significantly delayed. Metals continue to be volatile.” [Public Administration]
• “Construction remains quite strong, although material supply issues persist.” [Real Estate, Rental & Leasing]
• “In general, we still have very strong business activity throughout our business channels. This is despite a very challenging business environment of increasing costs, a very difficult employee retention and hiring environment, and massive logistical backlogs. These issues have forced us to lower our top-line sales forecast slightly, due to a lack of supply and throughput challenges. Where possible, we are looking for substitute products to sell. We are still projecting to be well above last year for the month.” [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
Aluminum (4); Aluminum Products (2); Beef (2); Chemicals (2); Chicken (2); Chips; Construction Contractors (4); Copper; Copper Products (4); Corrugated Products (2); Dairy; Diesel Fuel (11); Electrical Components (9); Electronics (2); Food (2); Food and Beverages (3); Freight (6); Fuel (10); Gasoline (11); Integrated Circuits; Labor (11); Labor — Construction (3); Labor — Temporary (10); Logistics Services (2); Metals; Metal-Based Products; Natural Gas; Ocean Freight (2); Pallets; Petroleum Products; Plastic Products (3); Poly Film Products (2); Polyvinyl Chloride (PVC) Products (2); Resin-Based Products (4); Security Services; Software Licensing; Software Maintenance and Support; Steel; Steel Products (10); and Transportation Costs.

Commodities Down in Price
Lumber (4).

Commodities in Short Supply
Appliances; Blood Collection Tubes (2); Chicken (2); Computer Equipment (3); Construction Contractors (2); Construction Subcontractors (3); Crutches; Electrical Components (2); Integrated Circuits; Labor (3); Labor — Technology and Web-Related; Labor — Temporary (10); Laptops and Desktop Computers (3); Microchips (3); Needles and Syringes (3); Ocean Freight Containers (2); Pallets; Paper Products; Pipette (8); Plastic Pipe; Plastics; Portion Control Condiment Packets; Polyvinyl Chloride (PVC) Products; Stainless Steel Products; Steel Products (2); Transportation; and Vacutainers.

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

OCTOBER 2021 SERVICES INDEX SUMMARIES

Services PMI^®

In October, the Services PMI^® registered 66.7 percent, a 4.8-percentage point increase compared to the September figure of 61.9 percent. This is the highest reading since the inception of the index in 2008. The 12-month average is 61.1 percent, which reflects the strong demand in the services sector. This reading indicates the services sector grew for the 17th 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 49.2 percent, over time, generally indicates an expansion of the overall economy. Therefore, the October Services PMI^® indicates expansion for a 17th 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 October (66.7 percent) corresponds to a 6.1-percent increase in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI^® HISTORY

Business Activity
ISM^®‘s Business Activity Index registered an all-time high of 69.8 percent in October, an increase of 7.5 percentage points from the September reading of 62.3 percent and surpassing the previous mark of 69.4 percent in March, indicating growth for the 17th consecutive month. Comments from respondents include: “Longer lead times are driving more orders and more quantities” and “Ramping up for peak season.”

The 17 industries reporting an increase in business activity for the month of October — listed in order — are: Real Estate, Rental & Leasing; Retail Trade; Information; Transportation & Warehousing; Educational Services; Utilities; Health Care & Social Assistance; Arts, Entertainment & Recreation; Mining; Wholesale Trade; Finance & Insurance; Management of Companies & Support Services; Other Services; Construction; Accommodation & Food Services; Professional, Scientific & Technical Services; and Public Administration. The only industry reporting unchanged in October is Agriculture, Forestry, Fishing & Hunting.

New Orders
ISM^®‘s New Orders Index registered a record 69.7 percent, an increase of 6.2 percentage points from the September reading of 63.5 percent. The previous all-time high was 67.2 percent in March. New orders grew for the 17th consecutive month after two months of contraction and a preceding period of 128 months of expansion. Comments from respondents include: “Increase in new business in a developing sector of our company” and “Pulling orders forward in order to contain constraint impact.”

The 16 industries that reported growth of new orders in October — listed in order — are: Retail Trade; Transportation & Warehousing; Other Services; Real Estate, Rental & Leasing; Utilities; Information; Management of Companies & Support Services; Accommodation & Food Services; Arts, Entertainment & Recreation; Health Care & Social Assistance; Wholesale Trade; Construction; Educational Services; Finance & Insurance; Professional, Scientific & Technical Services; and Public Administration. No industries reported a decrease in new orders in October.

Employment
Employment activity in the services sector grew in October for the fourth consecutive month after contracting in June. ISM^®‘s Services Employment Index registered 51.6 percent in October, down 1.4 percentage points from the September reading of 53 percent. Comments from respondents include: “Staffing and turnover remain significant challenges” and “Continued difficulty filling positions, especially front-line.” Also, “Drivers are in short supply; rate of turnover has increased.”

The 12 industries reporting an increase in employment in October — listed in order — are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Construction; Retail Trade; Wholesale Trade; Educational Services; Other Services; Information; Utilities; Finance & Insurance; and Professional, Scientific & Technical Services. The four industries that reported a reduction in employment in October are Management of Companies & Support Services; Public Administration; Health Care & Social Assistance; and Accommodation & Food Services.

Supplier Deliveries
The Supplier Deliveries Index registered 75.7 percent, 6.9 percentage points higher than the 68.8 percent reported in September. This is the index’s second-highest reading since its record high of 78.3 percent in April 2020. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. Comments from respondents include: “Lack of drivers and warehouse labor” and “Capacity constraints, raw material shortages, labor shortages and transportation delays.”

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

Inventories
The Inventories Index contracted in October for the fifth consecutive month. The reading of 42.2 percent was a 3.9-percentage point decrease from the 46.1 percent reported in September. Of the total respondents in October, 39 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Trying to increase, but very difficult to do so due to availability and transportation” and “Inflation is creating lower inventory levels due to costs.”

The six industries reporting an increase in inventories in October — listed in order — are: Arts, Entertainment & Recreation; Accommodation & Food Services; Construction; Educational Services; Utilities; and Health Care & Social Assistance. The six industries reporting a decrease in inventories in October — listed in order — are: Real Estate, Rental & Leasing; Mining; Retail Trade; Transportation & Warehousing; Professional, Scientific & Technical Services; and Information. Six industries reported no change in October versus September.

Prices
Prices paid by services organizations for materials and services increased in October, with the index registering 82.9 percent, 5.4 percentage points higher than September’s reading of 77.5 percent. This is the highest reading since September 2005, when the index reached its all-time high of 83.5 percent.

All 18 services industries reported an increase in prices paid during the month of October, in the following order: Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Management of Companies & Support Services; Wholesale Trade; Utilities; Other Services; Public Administration; Transportation & Warehousing; Educational Services; Retail Trade; Information; Construction; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Professional, Scientific & Technical Services; Finance & Insurance; Mining; and Health Care & Social Assistance.

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 October for the 16th time in the last 17 months. The index registered a record 67.3 percent, a 5.4-percentage point increase compared to the 61.9 percent reported in September. The previous all-time high was 65.8 percent in June. Of the total respondents in October, 43 percent indicated they do not measure backlog of orders.

The 14 industries reporting an increase in order backlogs in October — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Management of Companies & Support Services; Real Estate, Rental & Leasing; Wholesale Trade; Utilities; Health Care & Social Assistance; Information; Professional, Scientific & Technical Services; Other Services; Transportation & Warehousing; Public Administration; Construction; and Retail Trade. The one industry that reported a decrease in backlogs in October is Mining.

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 October for the ninth consecutive month. The New Export Orders Index registered 62.3 percent, 2.8 percentage points higher than the 59.5 percent reported in September. Of the total respondents in October, 75 percent indicated they either do not perform, or do not separately measure, orders for work outside of the U.S.

The eight industries reporting an increase in new export orders in October — listed in order — are: Real Estate, Rental & Leasing; Accommodation & Food Services; Construction; Information; Transportation & Warehousing; Wholesale Trade; Finance & Insurance; and Professional, Scientific & Technical Services. The two industries reporting a decrease in new export orders in October are: Utilities; and Educational Services. Eight industries reported no change in exports.

Imports
The Imports Index grew in October after two consecutive months of contraction, as it registered 53.3 percent, 5.6 percentage points higher than September’s figure of 47.7 percent. Seventy-one percent of respondents reported that they do not use, or do not track the use of, imported materials.

The six industries reporting an increase in imports for the month of October — listed in order — are: Retail Trade; Educational Services; Finance & Insurance; Transportation & Warehousing; Construction; and Wholesale Trade. The two industries reporting a decrease in imports in October are: Health Care & Social Assistance; and Professional, Scientific & Technical Services. Ten industries reported no change in imports in October.

Inventory Sentiment
The ISM^® Services Inventory Sentiment Index contracted in October for the seventh consecutive month, registering 37.3 percent, 9 percentage points lower than September’s figure of 46.3 percent. This reading is just 0.1 percentage point higher than the all-time low of 37.2 percent registered in June. This indicates that respondents feel their inventories are too low when correlated to business activity levels.

The two industries reporting sentiment that their inventories were too high in October are: Arts, Entertainment & Recreation; and Construction. The 10 industries reporting a feeling that their inventories were too low in October — listed in order — are: Real Estate, Rental & Leasing; Retail Trade; Mining; Professional, Scientific & Technical Services; Information; Transportation & Warehousing; Public Administration; Wholesale Trade; Utilities; and Health Care & Social Assistance. Six industries reported no change in October compared to September.

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 October 2021.

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 49.2 percent, over time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 49.2 percent, it is generally declining. The distance from 50 percent or 49.2 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 Advance^TM Digital Platform. 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 November 2021 data will be released at 10:00 a.m. ET on Friday, December 3, 2021.

*Unless the New York Stock Exchange is closed.

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SOURCE Institute for Supply Management