Services PMI™ at 56.6%; October 2020 Services ISM® Report On Business®

Business Activity Index at 61.2%; New Orders Index at 58.8%; Employment Index at 50.1%; Supplier Deliveries Index at 56.2%

TEMPE, Ariz., Nov. 4, 2020 /PRNewswire/ -- Economic activity in the services sector grew in October for the fifth month in a row, say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management^® (ISM^®) Services Business Survey Committee: “The Services PMI^™ registered 56.6 percent, 1.2 percentage points lower than the September reading of 57.8 percent. This reading represents a fifth straight month of growth for the services sector, which has expanded for all but two of the last 129 months.

“The Supplier Deliveries Index registered 56.2 percent, up 1.3 percentage points from September’s reading of 54.9 percent. (Supplier Deliveries is the only ISM^® Report On Business^® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Prices Index figure of 63.9 percent is 4.9 percentage points higher than the September reading of 59 percent, indicating that prices increased in October at a faster rate. According to the Services PMI^™, 16 services industries reported growth. The composite index indicated growth for the fifth consecutive month after a two month contraction in April and May. There has been a slight pull back in the rate of growth in the Services Sector in the month of October. Respondents’ comments are cautiously optimistic about business conditions and the economy. There is a degree of uncertainty due to the pandemic, capacity constraints, logistics and the elections,” says Nieves.

INDUSTRY PERFORMANCE
The 16 services industries reporting growth in October — listed in order — are: Transportation & Warehousing; Construction; Accommodation & Food Services; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Educational Services; Finance & Insurance; Management of Companies & Support Services; Wholesale Trade; Mining; Professional, Scientific & Technical Services; Utilities; Retail Trade; Real Estate, Rental & Leasing; Information; and Other Services. The two industries reporting a decrease in October are: Arts, Entertainment & Recreation; and Public Administration.

WHAT RESPONDENTS ARE SAYING

• “Business has improved, but greatly reliant on COVID-19-related restrictions. Supplier’s inventories and lead times are longer and spotty with outages due to keeping lead times lean as a cash flow measure, but putting consistent supply at risk.” (Accommodation & Food Services)
• “Interesting business cycle: Labor is still in short supply, and work orders are picking up.” (Construction)
• “Challenges to maintain safety and prevent the spread of COVID-19 has meant changes in the way activities are carried out. Purchases of personal protective equipment [PPE] and facilities equipment along with modifications to buildings and walkways has led to higher spending in some areas.” (Educational Services)
• “Given COVID-19, the adjustments we have made across the company has allowed us to reach previous employment levels, and those furloughed are back to work. Everyone is careful to wear the required PPE and keep distancing. We have added additional cleaning staff between shifts to upgrade sanitation.” (Finance & Insurance)
• “The new normal COVID-19 environment is causing uncertainty, but we’ve seen an increase in business that is close to pre-COVID-19 volumes for procedures.” (Health Care & Social Assistance)
• “While the economy is getting better, there is still very much uncertainty about the future. We are putting capital expenditures on hold until we gain additional confidence and certainty.” (Information)
• “We are remaining cautiously positive and resuming normal business operations.” (Management of Companies & Support Services)
• “Encouraging signs continue for an improved fourth quarter.” (Professional, Scientific & Technical Services)
• “We continue to be cautiously optimistic that the rebound in business that began in July continues to sustain.” (Retail Trade)
• “Business continues to gain as people are travelling and businesses are opening up to consumers.” (Wholesale Trade)

Services ISM^® Report On Business^® data is seasonally adjusted for the Business Activity, New Orders, Prices and Employment indexes. Manufacturing ISM^® Report On Business^® data is seasonally adjusted for New Orders, Production, Employment and Inventories indexes.
**Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE, AND IN SHORT SUPPLY

Commodities Up in Price
Chemical Products; Construction Contractors; Corn (2); Disinfectant Supplies (2); Exam Gloves; Fuel; Hand Sanitizer; Labor (3); Labor — Temporary (2); Lumber Products (6); Medical Supplies (9); Nitrile Gloves (2); Personal Protective Equipment (PPE)* (9); Plastic Products; PPE — Gloves; PPE — Gowns; PPE — Masks (3); PVC Products (2); and Steel (2).

Commodities Down in Price
Dairy; Diesel; Personal Protective Equipment (PPE)*; and Software.

Commodities in Short Supply
Aluminum; Cleaning Products; Construction Contractors; Construction Subcontractors; Disinfectant Wipes (6); Exam Gloves; Glass Plate; Isolation Gowns; Labor — Construction (5); Medical Supplies (2); N95 Masks (8); Nitrile Gloves (5); Paper Products (2); Personal Protective Equipment (PPE) (9); PPE — Gloves (7); PPE — Gowns (7); PPE — Masks (8); PVC Products; Resins; Sanitary Supplies (7); Syringes and Needles; Vinyl Gloves; and Wipes (5).

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

OCTOBER 2020 SERVICES INDEX SUMMARIES

Services PMI^™

In October, the Services PMI^™ (formerly the Non-Manufacturing NMI^®) registered 56.6 percent, 1.2 percentage points lower than September’s figure of 57.8 percent. The reading indicates the services sector grew for the fifth consecutive month after two months of contraction and 122 months of growth before that. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates the services sector is generally contracting.

A Services PMI^™ above 48.5 percent, over time, generally indicates an expansion of the overall economy. Therefore, the October Services PMI™ indicates expansion for a fifth straight month following two months of contraction and a preceding period of 128 months of growth. Nieves says, “The past relationship between the Services PMI^™ and the overall economy indicates that the Services PMI^™ for October (56.6 percent) corresponds to a 2.7-percent increase in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI™ HISTORY

Business Activity
ISM^®‘s Business Activity Index registered 61.2 percent in October, a decrease of 1.8 percentage points from the September reading of 63 percent. This represents growth for the fifth consecutive month. Comments from respondents include: “More stores open” and “Slight slowdown compared to last month, but still strong sales.”

The 16 industries reporting an increase in business activity for the month of October — listed in order — are: Transportation & Warehousing; Accommodation & Food Services; Mining; Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Construction; Management of Companies & Support Services; Finance & Insurance; Educational Services; Utilities; Other Services; Professional, Scientific & Technical Services; Wholesale Trade; Information; and Retail Trade. The only industry reporting a decrease in business activity for the month of October is Public Administration.

New Orders
ISM^®‘s New Orders Index registered 58.8 percent, a decrease of 2.7 percentage points from the September reading of 61.5 percent. New orders grew for the fifth consecutive month after two months of contraction and a preceding period of 128 consecutive months of expansion. Comments from respondents include: “New work orders” and “Some new business has been awarded.”

The 15 industries reporting growth of new orders in October — listed in order — are: Transportation & Warehousing; Construction; Health Care & Social Assistance; Accommodation & Food Services; Management of Companies & Support Services; Educational Services; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Mining; Professional, Scientific & Technical Services; Other Services; Retail Trade; Wholesale Trade; Utilities; and Information. The only industry reporting contraction in October is Public Administration.

Employment
Employment activity in the services sector grew in October for the second consecutive month after a six-month period of contraction, which was preceded by 72 consecutive months of growth. ISM^®‘s Services Employment Index registered 50.1 percent, down 1.7 percentage points from the September reading of 51.8 percent. Comments from respondents include: “Minor increase, filling positions” and “Slowly bringing back employees and investing in some areas as business returns.”

The six industries reporting an increase in employment in October — listed in order — are: Transportation & Warehousing; Retail Trade; Health Care & Social Assistance; Wholesale Trade; Finance & Insurance; and Construction. The eight industries that reported a reduction in employment in October — listed in order — are: Arts, Entertainment & Recreation; Other Services; Mining; Information; Public Administration; Utilities; Educational Services; and Professional, Scientific & Technical Services.

Supplier Deliveries
The Supplier Deliveries Index registered 56.2 percent, which is 1.3 percentage points higher than the 54.9 percent reported in September. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. Comments from respondents include: “Increased back orders and raw materials shortages are increasing late deliveries” and “Deliveries are delayed due to service issues from small package carriers.”

The 12 industries reporting slower deliveries in October — listed in order — are: Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Construction; Wholesale Trade; Professional, Scientific & Technical Services; Utilities; Information; Health Care & Social Assistance; Educational Services; Other Services; and Retail Trade. Six industries reported no change in supplier deliveries. No industry reported faster deliveries in October.

Inventories
The Inventories Index grew in October after two previous months of contraction. The reading of 53.1 percent was a 4.3-percentage point increase from the 48.8 percent reported in September. Of the total respondents in October, 33 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “We have made a concerted effort to reduce our inventory levels in a cost saving effort across the company” and “Supplier allocations impacting inventory quantities.”

The seven industries reporting an increase in inventories in October — listed in order — are: Transportation & Warehousing; Information; Educational Services; Wholesale Trade; Health Care & Social Assistance; Finance & Insurance; and Public Administration. The five industries reporting a decrease in inventories in October are: Arts, Entertainment & Recreation; Other Services; Mining; Construction; and Professional, Scientific & Technical Services. Six industries reported no change in inventories in October.

Prices
Prices paid by service organizations for materials and services increased in October, with the index registering 63.9 percent. This is 4.9 percentage points higher than the 59 percent reported in September.

The 13 services industries that reported an increase in prices paid during the month of October — listed in order — are: Transportation & Warehousing; Health Care & Social Assistance; Wholesale Trade; Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Utilities; Management of Companies & Support Services; Public Administration; Professional, Scientific & Technical Services; Construction; Finance & Insurance; Mining; and Educational Services. The two industries that reported a decrease in prices in October are: Information; and Accommodation & Food Services.

NOTE: Commodities reported as up in price and down in price are listed in the commodities section of this report.

Backlog of Orders
The ISM^® Services Backlog of Orders Index grew in October for the fifth consecutive month. The index registered 54.4 percent; 4.3 percentage points higher than the 50.1 percent reported in September. Of the total respondents in October, 40 percent indicated they do not measure backlog of orders.

The eight industries reporting an increase in order backlogs in October — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Wholesale Trade; Accommodation & Food Services; Health Care & Social Assistance; Finance & Insurance; Information; and Professional, Scientific & Technical Services. The six industries that reported a decrease in backlogs in October — listed in order — are: Other Services; Mining; Retail Trade; Public Administration; Educational Services; and Utilities.

New Export Orders
Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based companies grew in October for the third consecutive month. The New Export Orders Index registered 53.7 percent in October, which is 1.1 percentage points higher than the 52.6 percent reported in September. Of the total respondents in October, 66 percent indicated they either do not perform, or do not separately measure, orders for work outside of the U.S.

The seven industries reporting an increase in new export orders in October — listed in order — are: Real Estate, Rental & Leasing; Management of Companies & Support Services; Finance & Insurance; Transportation & Warehousing; Construction; Health Care & Social Assistance; and Wholesale Trade. The four industries that reported a decrease in exports in October are: Arts, Entertainment & Recreation; Public Administration; Utilities; and Retail Trade. Seven industries reported no change in October.

Imports
The Services Imports Index grew, as it registered 52.5 percent in October, 5.9 percentage points higher than September’s figure of 46.6 percent. Seventy-four percent of respondents reported that they do not use, or do not track the use of, imported materials.

The seven industries reporting an increase in imports for the month of October — listed in order — are: Wholesale Trade; Educational Services; Agriculture, Forestry, Fishing & Hunting; Construction; Utilities; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The only industry that reported a decrease in imports in October is Retail Trade. Ten industries reported no change in imports in October.

Inventory Sentiment
The ISM^® Services Inventory Sentiment Index in October registered 51.1 percent, which is 4.3 percentage points lower than the 55.4-percent reading in September. This indicates that respondents believe their inventories are too high.

The seven industries reporting sentiment that their inventories were too high in October — listed in order — are: Arts, Entertainment & Recreation; Mining; Information; Other Services; Wholesale Trade; Educational Services; and Construction. The three industries reporting a feeling that their inventories were too low in October are: Real Estate, Rental & Leasing; Transportation & Warehousing; and Professional, Scientific & Technical Services. Eight industries reported no change in inventory sentiment in October.

About This Report
DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report’s information reflects the entire U.S., while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of October 2020.

The data presented herein is obtained from a survey of supply executives in the services sector based on information they have collected within their respective organizations. ISM^® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation
The Services ISM^® Report On Business^® (formerly the Non-Manufacturing ISM^® Report On Business^®) is based on data compiled from purchasing and supply executives nationwide. Membership of the Services Business Survey Committee (formerly Non-Manufacturing Business Survey Committee) is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). The Services Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Public Administration; and Other Services (services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating Services).

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change, Inventory Sentiment, Imports, Prices, Employment and Supplier Deliveries), this report shows the percentage reporting each response and the diffusion index. Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The Services PMI^™ is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

A Services PMI^™ above 48.5 percent, over time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 48.5 percent, it is generally declining. The distance from 50 percent or 48.5 percent is indicative of the strength of the expansion or decline.

The Services ISM^® Report On Business^® survey is sent out to Services Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on U.S. operations for the current month. ISM^® receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses to give the most accurate picture of current business activity. ISM^® then compiles the report for release on the third business day of the following month.

The industries reporting growth, as indicated in the Services ISM^® Report On Business^® monthly report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

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About Institute for Supply Management^®
Institute for Supply Management^® (ISM^®) serves supply management professionals in more than 90 countries. Its 50,000 members around the world manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM leads the profession through the ISM Report On Business^®, its highly regarded certification programs and the ISM Mastery Model^®. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

The full text version of the Services ISM^® Report On Business^® is posted on ISM^®‘s website at www.ismrob.org on the third business day* of every month after 10:00 a.m. ET.

The next Services ISM^® Report On Business^® featuring November 2020 data will be released at 10:00 a.m. ET on Thursday, December 3, 2020.

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SOURCE Institute for Supply Management