December 3, 2020

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 service sector business activity index fell 3.2 points in November to 58.0 after having declined 1.8 points in October.  This series plunged in April to 26.0 which was the lowest level on record.  It then skyrocketed upwards.  In fact, the July reading of 67.2 was the highest reading for this index since January 2004.  Who would have thought that?   In the past couple of months the series has backtracked somewhat but at 58.2 remains at a very elevated level — basically in line with its average level of 58.7 during the decade long expansion we just experienced.

Anthony Nieves, Chair of the Institute for Supply Management, said, “In November, there continued to be a slight pullback in the rate of growth in the services sector. Respondents’ comments are mixed about business conditions and the economy. Restaurants continue to struggle with capacity constraints and logistics. Most companies are cautious as they navigate operations amid the pandemic and the aftermath of the U.S. presidential election.”

Comments from respondents include:

“Conflicting national, regional, and local guidelines/requirements for COVID-19 issues are becoming increasingly difficult to navigate, leading to a lot of just in time (JIT)-type purchases.” (Accommodation & Food Services)

“Recent spike in the infection rates of COVID-19 have caused us to pause plans to further reopen our campus. Sourcing for the resumption and expanded use of onsite testing of students and staff along with concerns over possible personal protective equipment [PPE] shortages occupy most staff meetings.” (Educational Services)

“Uncertainty related to the U.S. election is resulting in additional cybersecurity needs.” (Finance & Insurance)

“Business activity is inconsistent. Businesses that reopened are closing for a second time, leading to interruptions in the supply chain.” (Management of Companies & Support Services)

“Business activity is inconsistent. Businesses that reopened are closing for a second time, leading to interruptions in the supply chain.” (Management of Companies & Support Services)

Typically, large changes in the overall index are led by orders which, in this case, fell 1.6 points in November to 57.2 after having declined 2.7 points in October.  Orders are rising rapidly, but not as rapidly as in September.  Comments from respondents include: “Sales for last month exceeded all-time high for the season” and “Year-end demand is high as we approach the end of our fiscal year.”

The ISM non-manufacturing index for employment rose 1.4 points in November to 51.5 after having declined 1.7 points in October.  Seven  industries reported an increase in employment in September. Comments from respondents include: “Unable to fill vacant positions with qualified applicants” and “Having to overstaff due to high turnover and people being quarantined.”

The supplier deliveries component rose 0.8 point in November to 57.0 after having risen 1.3 points in October.  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 are reporting slower deliveries in November.    Comments from respondents include: “Still seeing COVID-19 delays” and “Slowdown of deliveries and increasing spot back orders for certain medical supplies.”

Finally,  the price component rose 2.2 points in November to 66.1 after having jumped 4.9 points in October.  Prices are rising, and they are climbing more rapidly than they did in October.  Fifteen service sector industries reported an increase in prices paid during the month compared to one which reported a decrease.

The manufacturing and non-manufacturing sectors of the economy both fell sharply in March and April but have rebounded very quickly..  Clearly the recession ended in April and a new expansion began in May.  For what  it is worth, following a 31.4% decline in GDP in the second quarter GDP jumped 33.1% in the third quarter and we expect an additional 10.0% growth  in Q4..

Stephen Slifer

NumberNomics

Charleston, SC