November ISM Services Index Still Suggests Expansion
The Institute for Supply Management’s composite services index posted a reading of 55.9 in November, dropping 0.7 points from 56.6 in the prior month. Despite the second small decline in a row, the November results remain solidly above neutral and suggest the sixth consecutive month of expansion for the services sector and the broader economy (see top chart).
Among the key components of the services index, the business-activity index (comparable to the production index in the ISM manufacturing report) fell to 58.0 in November, down from 61.2 in October, a drop of 3.2 points and the third decline in the last four months (see top chart). For November, 14 industries in the services survey reported expansion while four reported contraction.
The services new-orders index fell to 57.2 from 58.8 in October, a drop of 1.6 points (see bottom chart). Thirteen industries reported expansion in new orders in November. The new-export-orders index, a separate index that measures only orders for export, was 50.4 in November, versus 53.7 in October. Six industries reported growth in export orders.
Backlogs of orders in the services sector likely declined as the index decreased to 50.7 percent from 54.4 percent. Backlogs of orders have grown for six consecutive months with eight industries reporting higher backlogs in November.
The services employment index came in at 51.5 in November, up from 50.1 in October (see bottom chart). Employment remains one of the weaker areas of the economy. Seven industries reported growth in employment while six reported a reduction. Despite the large gains in jobs over the last six months, total employment remains well below pre-pandemic levels. Furthermore, ongoing high levels of initial claims for unemployment insurance and high levels of continuing claims for unemployment insurance suggest continued economic recovery remains somewhat uncertain.
Supplier deliveries, a measure of delivery times for suppliers to nonmanufacturers, came in at 57.0, up from 56.2 in the prior month. It suggests suppliers are falling further behind in delivering supplies to services businesses, and the slippage has accelerated from the prior month. Typically, slower deliveries are consistent with a strong economy but in this environment, the slower deliveries may be partially a result of production constraints and transportation difficulties. Fourteen industries reported slower deliveries in November. According to the report, “Comments from respondents include: ‘Still seeing COVID-19 delays’ and ‘Slowdown of deliveries and increasing spot back orders for certain medical supplies.’”
The latest report from the Institute of Supply Management suggests that the services sector and the broader economy expanded in November but at a somewhat slower pace. Several respondents to the survey mentioned renewed cases of Covid-19 as an issue. While the economy is still recovering, the outlook is threatened by renewed restrictions on consumers and businesses driven by surging new cases of Covid-19.
Robert Hughes
Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
