US ISM Services Gauge Rises Unexpectedly on Business Activity Surge
New orders help provide insight as to the demand for services by consumers and businesses and, ultimately, whether economic growth is increasing or decreasing. The Institute for Supply Management is a not-for-profit organization with over 50,000 members across 100 countries. The ISM helps to establish education, https://g-markets.net/ research, leadership development, and certification in various areas regarding the profession of supply management and purchasing. Department of Commerce to measure various activities within supply management. The ISM Services report contains the economic activity of more than 15 industries.
- Increased levels of consumer spending typically lead to higher economic growth.
- This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.
- PricesPrices paid by services organizations for materials and services increased in February for the 69th consecutive month, with the index registering 65.6 percent, 2.2 percentage points lower than the 67.8 percent recorded in January.
- 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.
Thus, it is one of the earliest indicators of economic activity that investors and business people get regularly. The ISM manufacturing index, also known as the purchasing managers’ index (PMI), is a monthly indicator of U.S. economic activity based on a survey of purchasing managers at more than 300 manufacturing firms. Formally called the Manufacturing ISM Report on Business, the survey is conducted by the Institute for Supply Management (ISM).
The ISM Manufacturing Index states figures as a number that indicates whether the manufacturing sector is growing or contracting. A PMI reading over 50 (or over 50%) means the sector is growing compared to the previous month, while a PMI reading under 50 (or under 50%) means the sector has month-over-month contracted. The ISM survey is broadly diversified across industries based on the North American Industry Classification System (NAICS), which is weighted by each industry’s share of U.S. gross domestic product (GDP). Survey responses are delineated into 17 industry sectors, such as chemical products, computer, and electronic products, and transportation equipment. Monitoring the ISM Services PMI can help investors better understand the economic conditions within the U.S. Also, some service sectors may experience growth while others contract, which can be helpful when choosing which industry to invest in via equities or corporate bonds.
Services PMI® at 49.6%; December 2022 Services ISM® Report On Business®
Services PMI®In January, the Services PMI® registered 53.4 percent, a 2.9-percentage point increase compared to the seasonally adjusted December reading of 50.5 percent. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent island candlestick pattern indicates it is generally contracting. A Services PMI® above 50.1 percent, over time, generally indicates an expansion of the overall economy. Therefore, the December Services PMI® indicates the overall economy is contracting after a preceding period of 30 months of growth.
Inventory SentimentThe ISM® Services Inventory Sentiment Index grew for the ninth consecutive month in January after one month of contraction in April, preceded by four consecutive months of growth and four months of contraction from August to November 2022. The index registered 59.3 percent, a 4-percentage point increase from December’s figure of 55.3 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels. The New Export Orders Index registered 56.1 percent, a 5.7-percentage point increase from the 50.4 percent reported in December. Of the total respondents in January, 70 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S. The New Export Orders Index registered 61.7 percent, a 2.7-percentage point increase from the 59 percent reported in January.
ISM Non-Manufacturing Index: Meaning and Types
The ISM manufacturing index is a composite index that gives equal weighting to new orders, production, employment, supplier deliveries, and inventories. The Institute of Supply Management (ISM) Non-Manufacturing Index is an economic index based on surveys of more than 400 non-manufacturing (or services) firms’ purchasing and supply executives. The ISM services survey is part of the ISM Report On Business—Manufacturing (PMI) and Services (PMI).
Services PMI® at 55.1%; February 2023 Services ISM® Report On Business®
Of the total respondents in February, 81 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S. Inventory SentimentThe ISM® Services Inventory Sentiment Index grew in February for the third consecutive month, following four months of contraction. The index registered 55.3 percent, a 0.5-percentage point decrease from January’s figure of 55.8 percent. Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based companies contracted in December for the third consecutive month after an eight-month period of growth. The New Export Orders Index registered 47.7 percent, a 9.3-percentage point increase from the 38.4 percent reported in November. Of the total respondents in December, 73 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.
US ISM Services PMI is at a current level of 53.40, up from 50.50 last month and down from 55.20 one year ago. US ISM Services Prices Paid Index is at a current level of 64.00, up from 56.70 last month and down from 67.80 one year ago. In the beginning of December 2022, the ISM released the series index information for November 2022. By monitoring the ISM manufacturing index, investors can better understand national economic trends and conditions.
For example, six manufacturing industries reported growth in November, led by the apparel industry. When the business activity index is increasing, investors might infer that the stock markets should increase because of higher expected corporate profits. When used alongside the ISM Manufacturing PMI, the industry coverage between the two reports account for a significant portion of the goods and services produced in the U.S. economy—measured by gross domestic product (GDP). New orders include new sales that were recorded for the month and whether businesses have seen increases or decreases in demand for their services versus prior months. For example, retailers might report a high demand for their services at year-end due to the holiday season.
The robust January jobs data proves that services activity was, to a great extent, driven by the labor market as hiring was robust across industries. The Supplier Deliveries Index rose to 52.4% in January, increasing 2.9% from December’s reading of 49.5%. The Employment Index jumped to 50.5% last month, increasing a solid 6.9% from the seasonally adjusted December figure of 43.8%. Investing.com — After Friday’s strong jobs report made it likely the Federal Reserve will delay interest rates cuts investors will be focusing on upcoming earnings and economic data to gauge the…
When the index is rising, investors anticipate a bullish stock market in reaction to higher corporate profits. The opposite is the case in the bond markets, which may fall as the ISM Manufacturing Index rises because of the sensitivity of bonds to inflation. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance.
About This ReportDO 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.
A Services PMI® above 49.9 percent, over time, generally indicates an expansion of the overall economy. Therefore, the February Services PMI® indicates the overall economy is growing for the second consecutive month after one month of contraction in December. Nieves says, “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for February (55.1 percent) corresponds to a 1.8-percent increase in real gross domestic product (GDP) on an annualized basis.” 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. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment.
Seventy percent of respondents reported that they do not use, or do not track the use of, imported materials. The sector has grown in 32 of the last 33 months, with the lone contraction in December. The Imports Index grew for the fourth consecutive month in December after three previous months of contraction, registering 52.7 percent, down 6.8 percentage points from November’s reading of 59.5 percent. Seventy-two percent of respondents reported that they do not use, or do not track the use of, imported materials. For each of the categories, a diffusion index is calculated by adding the percentage of respondents reporting an increase to half of the percentage of respondents reporting no change. The composite manufacturing index is calculated by taking an equal 20% weighting for five categories of questions on new orders, production, employment, supplier deliveries, and inventories.
Stocks to Buy on Robust ISM Services Index in January
Given this situation, it would be ideal to invest in business services stocks. AFRM, WNS (Holdings) Limited WNS, Vertiv Holdings Co VRT, Science Applications International Corporation SAIC and Booz Allen Hamilton Holding Corporation BAH are likely to benefit in the near term. If anything, growth appears to have perked up early in 2024 amid the looming prospect of interest-rate cuts later in the year. The Institute for Supply Management’s survey climbed to 53.4% from 50.5% in the prior month.
