April Services PMI is off from March but still is strong, reports ISM

While coming in slightly below March’s levels, services economy activity, for the month of April, remained strong, according to the most recent edition of the Services ISM Report on Business, which was issued today by the Institute for Supply Management (ISM).

The reading for the report’s key metric— the Services PMI (formerly the Non-Manufacturing PMI)—came in at 57.1 (a reading of 50 or higher signals growth)—fell 1.2%, growing, at a slower rate, for the 23rd consecutive month. Services sector growth has remained intact for 145 of the last 147 months through April, said ISM.

The April Services PMI is 3.7% below the 12-month average of 61.8, with November 2021’s 68.4 and February’s 56.5 representing the high and low points over the last 12 months, respectively.

ISM reported that 17 of the services sectors it tracks saw gains in April, including: Construction; Utilities; Management of Companies & Support Services; Real Estate, Rental & Leasing; Accommodation & Food Services; Public Administration; Professional, Scientific & Technical Services; Educational Services; Mining; Transportation & Warehousing; Wholesale Trade; Finance & Insurance; Other Services; Health Care & Social Assistance; Retail Trade; Arts, Entertainment & Recreation; and Agriculture, Forestry, Fishing & Hunting. The lone industry seeing a decrease was Information.

The report’s equally weighted subindexes that directly factor into the NMI were mixed in April, including:

  • Business activity/production, at 59.1, increased 3.6%, growing, at a faster rate, for the 23rd consecutive month, with 14 services sectors reporting growth;
  • New orders, at 54.6, decreased 5.5%, growing, at a slower rate, for the 23rd consecutive month, with 13 services sectors reporting growth;
  • Employment, at 49.5, decreased 4.5%, contracting after growing 5.5% in March, which was preceded by seven straight months of growth, with ten services sectors seeing employment increases; and
  • Supplier deliveries—at 65.1 (a reading above 50 percent indicates slower deliveries)—were up 1.7% compared to March, slowing, at a faster rate, for the 35th consecutive month

Comments from ISM member panelists included in the report highlighted various issues being seen in the services sector, including: varying business levels, inflation, and supply chain and employment issues, among others.

“Inflation, supply chain issues and access to qualified workers continue to be issues. There are still lingering effects from the pandemic, although those seem to be subsiding. The future impacts of the war in Ukraine are unclear,” said a Public Administration respondent.

A retail trade panelist pointed to continued delays due to supply chain logistics issues, as well as increased pricing across the board.

Tony Nieves, Chair of ISM’s Management Services Business Survey Committee, said in an interview that had the employment number been better—at 50 or higher—April’s Service PMI reading would have been in the same range as March.

“The reason that it did not was due to hyper-competitive markets for employees, a restrictive labor pool that makes it difficult to fill positions, and new orders being down 5.5%, driven by a slowing in deliveries and backlogs, with companies putting more orders forward and trying to catch up,” he said. “We are not seeing things so much leveling off. There is some easing a little bit in the supply chain, but there are still the same old impediments out there. Consume confidence is taking a little bit of a hit right now, with inflation, but we still have strong business activity. The economy is going well. We still have a challenge with inflation, and very low unemployment is giving us wage pressure, and cost pressures. Overall, it is still a good picture.”

With the Federal Reserve expected to increase interest rates by 0.5%, Nieves said markets may suffer somewhat, the rate increases will help to stabilize the economy.

What’s more, with services demand continuing to outstrip supply, Nieves said he expects that to remain the case for a while, as the services sector has not caught up from the pent-up demand coming off the depths of the pandemic, with things still in what he called catch-up mode, due to capacity limitations.

“It is not so much demand increasing and increasing, it is more that capacity has not caught up to the necessary output that we need,” he said.

When asked how much of a concern rising positive Covid case numbers are, Nieves explained it is a potential headwind for services, as well as the current geopolitical environment, with Europe more susceptible to a recession than the U.S. And China recently saw a gain in imports but its current Covid policies, in the form of ongoing shutdowns, has the potential to impact supply chains going forward.

Looking ahead, Nieves said that the services sector would benefit, should prices come down. April’s prices reading—at 84.6—eked out a 0.8% gain, increasing, at a faster rate, for the 59th consecutive month, for its highest reading ever, topping the 83.9 reading from December 2021. Nieves said it is unlikely a new record will be set in May, as fuel prices have come down since last month, coupled with a little bit of a decrease in output, from a capacity standpoint.

“It is said that it takes nearly two years for federal stimulus money to be absorbed [into the economy, and we are getting to that point in time,” he said.

Addressing employment, he noted that the main issue is not just low availability of workers but more so the lack of suitable workers, as some positions cannot just be filled by anybody. On the other end, he said, are unskilled or low-skilled positions—largely in retail and food and accommodation services—with people having more choices and transitioning into new career paths.

About the Author

Jeff Berman, Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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