In the latest ISM® services sector business report, the country’s procurement and supply officials said that economic activity in the services sector expanded for the fifth consecutive month in November. US ISM Services PMI came in at 52.1 percent, indicating the 51st expansion in 54 months since the recovery from the recession caused by the coronavirus pandemic began in June 2020.
Steve Miller, chair of the Institute for Supply Management’s Services Business Survey (ISM)® Committee released today: “In November, the services PMI came in at 52.1 percent, down 3.9 percentage points from October’s figure of 56 percent. The November reading was the ninth time the composite index was in expansion zone this year. The inventory confidence index expanded for the nineteenth consecutive month, increasing to 54.6%, up 1.6 percentage points from October’s reading of 53%.
Meanwhile, the order backlog remained in contraction territory for the fourth consecutive month, registering 47.1% in November, down 0.6 percentage points from October’s reading of 47.7%. The new orders index also recorded a reading of 53.7 percent in November, down 3.7 percentage points from October’s figure of 57.4 percent. The employment index in the expansion zone fell for the fourth time in five months; a reading of 51.5 percent is a decline of 1.5 percentage points compared to 53 percent recorded in October.
The Supplier Deliveries Index was at 49.5 percent, down 6.9 percentage points from 56.4 percent recorded in October. The index was in contraction territory for the sixth time in 2024 – suggesting faster supplier delivery performance – after two months in the expansion or “slower” zone. (The supplier delivery index is the only indicator for the ISM® for business® reversed; a reading above 50 percent indicates slower deliveries, which is normal as the economy improves and customer demand increases).
US ISM Services PMI in November: growth and contraction
The price index came in at 58.2 percent in November, up 0.1 percentage point from October’s reading of 58.1 percent. The inventory index returned to contraction territory in November after three months of expansion, recording 45.9 percent, down 11.3 percentage points from October’s figure of 57.2 percent. “The inventory confidence index expanded for the nineteenth consecutive month, recording 54.6%, up 1.6 percentage points from October’s reading of 53%. The order backlog remained in contraction territory for the fourth consecutive month, at 47.1% in November, down 0.6 percentage points from October’s reading of 47.7%.
Fourteen industries reported growth in November, matching the previous month’s total. The services PMI has expanded in 21 of the last 23 months since January 2023, and November’s reading is 0.2 percentage point lower than its 2024 average of 52.3%.
Miller continues: “The decline in the PMI for the services sector in November was driven by declines in each of the four directly impactful sub-indices (business activity, new orders, hiring and supplier delivery). However, 14 industries reported growth in business activity, and 13 industries reported an expansion in new orders; both figures represent an improvement compared to October. This reinforces the view over the past several months that the services sector has returned to sustainable growth. Overall, respondents’ comments were neutral to positive.
The 14 service industries that reported growth in November – listed in order – were as follows: first, accommodation and food services; second, arts, recreation, and recreation; third, healthcare and social assistance; next, wholesale trade; followed by, agriculture, forestry, fishing and hunting; then, public administration; in addition, finance and insurance; also, corporate management and support services; furthermore, retail trade; subsequently, transportation and storage; moreover, information; additionally, professional, scientific and technical services; and finally, construction and facilities.
What external factors can influence the US ISM Services PMI readings?
There are several external factors that can influence the Institute of Supply Management’s Services PMI readings:
Economic conditions: Broader economic trends, such as GDP growth or recession, significantly affect the performance of the services sector, affecting PMI readings.
Consumer confidence: Fluctuations in consumer sentiment can affect spending patterns. Higher consumer confidence usually leads to increased demand for services, boosting the PMI.
Interest rates: Changes in interest rates set by the Fed can affect borrowing costs, affecting consumer spending and commercial investment in services.
Employment data: Labor market conditions, including unemployment rates and wage growth, can affect consumer spending and service sector performance.
Supply chain disruptions: Issues such as material shortages or transport delays can affect providers’ ability to meet demand, affecting PMI readings.
Inflation: Increased input and labor costs can lead to higher prices for services, affecting PMI components related to costs and pricing pressures.
Geopolitical events: Political instability, trade disputes, or global tensions can create uncertainty, affecting business confidence and demand for services.
Seasonal factors: Seasonal trends and holidays can lead to fluctuations in demand for services, affecting PMI readings over specific periods.
Technological advances: Innovations and changes in technology can affect productivity and service delivery, affecting the overall performance of the sector.
Government policies: such as fiscal and regulatory measures, including taxes and spending policies—can significantly influence business operations and consumer behavior, thereby affecting the PMI.
By observing these external factors, analysts and policymakers can better understand the dynamics affecting the Institute for Supply Management’s Services PMI and their implications for the broader economy.
