April 3, 2024

The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of service sector firms.  The business activity index rose 0.2 point in March to 57.4 after climbing 1.4 points in February.  We tend to focus on the business activity component as a measure of “production” because it seems to track better with the pace of economic activity.  If that is the case, the service sector continues to chug along.

The composite index declined 1.2 points in March to 51.4 after falling 0.8 point in February.   According to Anthony Nieves, Chair of the Institute for Supply Management’s Business Survey Committee, “The decrease in the rate of growth in March and the decline in the composite index is a result of slower new orders growth, faster supplier deliveries and a contraction in employment. The report continued to reflect growth month over month. Respondents indicated continuing improvement in logistics and the supply chain. Employment challenges remain a combination of difficulties in backfilling positions and/or controlling labor expenses. The Prices Index reflected its lowest reading since March 2020, when the index registered 50.4 percent; however, respondents indicated that even with some prices stabilizing, inflation is still a concern.”

It appears that activity in the service sector remains fairly steady.  At its current level the ISM group says that is consistent with 0.8% GDP growth.

Comments from respondents include:

  • “The Red Sea turmoil is still not a notable challenge on supply for our sector, but we’re watching carefully for disruption risk. Also, the unrest in Haiti carries potential risk for the garment industry.” [Accommodation & Food Services]
  • “Our market is shaping up to be the first normal year since the start of COVID-19. Volumes were down in 2022 and 2023. A price correction was made last year, setting up sales to move back to historical volumes.” [Agriculture, Forestry, Fishing & Hunting]
  • “National business conditions remain strong in the industrial construction market. Labor is still tight across the country for skilled trades positions.” [Construction]
  • “We are experiencing a budget shortfall, like many of our peers in higher education, so our spending will be down at the end of this fiscal year (June 30). Hiring is at a much slower pace as well, and we are still experiencing high employee turnover. Public opinion on the value of higher education compared to the cost is having an impact on our enrollment.” [Educational Services]
  • “With the housing market continuing to stabilize, more mortgage inquiries are being made since my company opened up its mortgage loan program to loans other than Veterans Affairs loans.” [Finance & Insurance]
  • “Continued inflationary pressure across multiple clinical device categories as contracts expire or are renewed.” [Health Care & Social Assistance]
  • “Activity level holding steady for oil and gas.” [Mining]
  • “Our company and industry continue to pull back to prepare for economic volatility in the second half of the year. Cost reduction initiatives remain a top-five company objective, even in a high-growth environment.” [Professional, Scientific & Technical Services]
  • “Product supply chain is calm, and pricing steady. We are in slack time between seasons and use this time to prepare for spring/summer business. Challenges with employee retention in a few areas; however, turnover is only a few percent beyond target levels.” [Retail Trade]
  • “Lead times and supply are improving, but several strategic items remain difficult to procure.” [Utilities]

The orders component fell 1.7 points in March to 54,4 after rising 1.1 points in February.  Eleven industries reported growth of new orders in March.  Comments from respondents include:  “Engagements that had previously been delayed have now been scheduled” and “Pipeline for spring/summer ramp-up.”


The ISM non-manufacturing index for employment rose 0.5 points in March to 48.5 after falling 2,5  points in February.   Six industries reported an increase in employment in  March.   Comments from respondents include “Attrition and slow backfill approval processes” and “Still working through year-end retirements and positions still not filled.”

The supplier deliveries component plunged by 3.5 points in March to 45.4 after declining 3.5 points in February.  This component is reversed in the sense that a reading above 50 percent indicates slower deliveries to service sector firms, while a reading below 50 percent indicates faster deliveries. Thus, firms reported significantly faster delivery times in March after reporting slightly faster deliveries in February.   Firms began to report faster delivery times in December of 2022 and that has been the case for almost every month since.  Comments from respondents include: “Slight uptick in normalizing delivery times” and “Fulfillment percentage is hovering around 93 or 94 percent; not sure if we will ever get back to pre-pandemic numbers of 98 or 99 percent since suppliers are just not carrying as much stock.”

Finally,  the price component fell 5.2 points in March to 53.4 after declining 5.4 points in February.  Thirteen service sector industries reported an increase in prices paid during the month.  While prices rose in March this is the lowest reading for this index since March 2020.  In the service sector price pressures continue to abate.

The manufacturing sector of the economy has contracted since November of 2022 as inflation has continued to climb at a much faster than desired pace and the Fed initiated a series of interest rate hikes.  But now inflation has abated and, for the first time in a couple of years, the Fed seems poised to lower rates by midyear.  Meanwhile, the service sector continues to expand.  We are looking for 2.2% GDP growth in the first quarter as firms continue to hire, wages continue to climb, and consumers continue to spend.

.Stephen Slifer


Charleston, SC