November services sector output saw growth for the fifth consecutive month, according to the latest edition of the Services ISM Report on Business, released today by the Institute for Supply Management (ISM).
The November Services PMI, at 52.1 (a reading of 50 or higher signals growth), was down 3.9% compared to October, growing, at a slower rate, for the fifth consecutive month. October was at 56.0, up 1.1% over September, and September came in at 54.9, up 3.4%, over August. The August Services PMI, at 51.5, was essentially flat, with a slight 0.1% increase over July’s reading of 51.4, which was up 2.6% from June’s 48.8. May’s PMI was 53.8, following a 49.4 reading in April, which marked the first contraction since December 2022 (when the PMI was 49). Prior to that, the last contraction was in May 2020, when the PMI dropped to 45.4.
The November PMI was 0.1% below the 12-month average of 52.2, with October’s 56.0 and June’s 48.8, marking the respective high and low readings over that period.
ISM reported that 14 of the services sectors it tracks saw growth in November, including: Accommodation & Food Services; Arts, Entertainment & Recreation; Health Care & Social Assistance; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Public Administration; Finance & Insurance; Management of Companies & Support Services; Retail Trade; Transportation & Warehousing; Information; Professional, Scientific & Technical Services; Construction; and Utilities. The three sectors seeing contraction were: Mining; Real Estate, Rental & Leasing; and Educational Services.
The report’s subindexes that factor into the NMI largely saw declines from October to November, including:
- Business Activity/Production: at 53.7, down 3.5% from October, growing, at a slower rate, for the fifth consecutive month, following a contraction in June (49.6), which was the first monthly contraction since May 2020. Business Activity/Production has expanded in 53 of the last 54 months, with 14 sectors reporting growth in November;
- New Orders: at 53.7, down 3.7%, growing, at a slower rate for the fifth consecutive month. This followed a contraction in June for the second time since May 2020, with 13 sectors reporting growth in November;
- Employment: at 51.5, down 1.5%, growing, at a slower rate, for the second consecutive month, following October’s 53.0, its highest level since August 2023, with five sectors reporting growth in November;
- Backlog of Orders, at 47.1, down 0.6%, contracting, at a faster rate, for the fourth consecutive month, with five sectors reporting increases;
- Supplier Deliveries, at 49.5 (a reading above 50 indicates slower deliveries), off 6.9% from October, moving “faster,” after slowing for the two previous months, with six sectors reporting slower deliveries;
- Prices, at 58.2, up 0.1%, increasing, at a faster rate, for the 90th consecutive month, with 14 sectors reporting an increase in prices paid (November marks the 25th consecutive month prices have been below 70, with 19 of the last 20 months at or below 60. In contrast, prices were near or above 80 from September 2021 to June 2022); and
- Inventories, at 45.9, down 11.3%, contracting, after three months of growth, with four sectors reporting an increase in inventories
Comments from ISM member panelists included in the report highlighted various trends in the services sector.
A Professional, Scientific & Technical Services panelist said that election results and the potential tariff changes would impact inventory and lead to higher prices in the hospital supply chain, adding that what occurred during COVID-19 with startup U.S. production is a warning sign again. And a Transportation & Warehousing panelist said that his company, “is still waiting to see how presidential cabinet picks shake out, if they are confirmed and how they will affect our operations going forward. Holding capital projects now until the cabinet is complete and we know how federal funds will be dispersed going forward.”
In an interview, Steve Miller, Chair of the ISM Services Business Survey Committee, said that November’s Services PMI reading and related data serve as what he called a return to trend, with November’s 52.1 in line with the 52.2 12-month average, coupled with some notable events leading up to November.
“Over September and October, we had the port strike and some hurricane activity, which particularly impacted healthcare, with Baxter’s IV plant shut down, which was a big deal, and we has a dozen panelists comments about related IV issues,” said Miller. “I think there was some risk management based on not only the survey, but people that I’ve talked to within the services industry on people building ahead, getting ready for things that they thought were coming like an extended port strike. And I think that’s what we saw in terms of the New Orders and Business Activity during those two months.”
Addressing the respective November declines for New Orders and Supplier Deliveries, Miller said they tend to map pretty closely.
“When supplier deliveries are faster, backlog orders drop, when readings for both are below 50,” said Miller. “On the other side, when you see supplier deliveries slow down, you see backlog of orders go up, which is logical. “Since the pandemic, they’ve tracked very closely together, in terms of increases in one are increases in the other and drops in one or drops in the other. Strangely enough, it doesn’t directly correlate to expansion and contraction. It correlates to increases in the index and decreases in the index.”
Looking at the 11.2% decline in Inventories, Miller said he attributes that to companies building up inventories to account for the potential impact of an East and Gulf Coast ports’ strike in January, with the other piece focusing on seasonality around wholesale and retail trade, like building up inventories for selling seasons.
“Everything that was going to be brought in was brought in by October and out to the stores and is now dropping from there,” he said.
When asked about the state of the services economy on a year-to-date basis, Miller said it is in a slow-to-moderate growth environment, adding he expects the December Services PMI reading to be in the 50-to-51 range.
