November ISM Services PMI sets another all-time high record

On the heels of setting a new all-time record in November, the services economy did itself one better in November, in setting a new all-time record, according to data in the most recent edition of the Services ISM Report on Business, which was issued Friday by the Institute for Supply Management (ISM).

The reading for the report’s key indicator—the Services PMI (formerly the Non-Manufacturing PMI)—at 69.1 (a reading of 50 or higher signals growth)—topped October’s 66.7 by 2.4%, a new all-time high. What’s more, it also marks the fifth time in 2021 that a new record has been set, following October’s 66.7, July’s 64.1 reading, May’s 64 reading, and March’s 63.7 reading. The Services PMI grew for the 18th consecutive month, with services sector growth intact for 140 of the last 142 months.

The November Services PMI reading is 7.1% above the 12-month average of 62.1, with November representing the highest reading, for that period, and February’s 55.3 representing the lowest reading.

ISM reported that each of the 18 services sectors it tracks saw gains in November, including: Real Estate, Rental & Leasing; Transportation & Warehousing; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Utilities; Wholesale Trade; Mining; Public Administration; Construction; Health Care & Social Assistance; Arts, Entertainment & Recreation; Other Services; Professional, Scientific & Technical Services; Finance & Insurance; Information; Educational Services; and Accommodation & Food Services. No industries are reporting contraction in November.

The report’s equally weighted subindexes that directly factor into the NMI were largely up in November, including:

• business activity/production increasing 4.8%, to 74.6, growing, at a faster rate, for the 18th consecutive month and setting a new all-time high, with 16 sectors reporting growth;
• new orders were flat, at 69.7, growing, at the same, for the 18th month in a row, matching the all-time high set on October, with all 18 sectors reporting growth;
• employment—at 56.5—increased 4.9%, growing, at a faster rate, for the fifth consecutive month, with 11 sectors reporting growth; and
• supplier deliveries—at 75.7—matching October’s level, slowing, at the same rate, for the 30th consecutive month, with 17 sectors reporting slower deliveries

Comments from ISM member respondents included in the report again pointed to myriad supply chain-related issues, including an uptick in transportation bottlenecks, resulting in longer lead times and missed appointments.

An Agriculture, Forestry, Fishing & Hunting respondent noted that business is greater than in the past while supply chain issues persist, with the caveat that his company is evolving to overcome or manage them better than in the past.

And an Accommodation & Food Services respondent said cited labor shortages, transportation, and supply chain constraints and allocations as her company’s chief issues.

Tony Nieves, Chair of ISM’s Management Services Business Survey Committee said in an interview, that November services sector growth was mostly attributed to pent-up demand and stimulus funding.

“But we also know as we had supply chain disruptions, another contributing factor is order frequency and increase in quantity,” he said. “As we move from a demand-pull sector, it went from just-in-time to just-in-case. It is kind of like flying by the seat of your pants right now.”

A new all-time high for business activity and the matching of an all-time new orders high, and the uptick in employment each served as strong growth catalysts, according to Nieves.

And he also observed that backlog of orders came down a little bit, from 67.3 in October to 65.9 in October, factoring into deliveries and cycle time, and also inventories up 6%, to 48.2, and 36.4% of ISM respondents indicating they cannot replenish inventories fast enough.

“On the transportation side, we are seeing the same thing, in terms of getting trucks and drivers, and also chassis and containers, which is really an ongoing thing,” he said.

Addressing prices, which slipped 0.6%, to 82.3, increasing, at a slower rate, for the 54th consecutive month, following October’s 82.9, the highest reading since September 2005’s 83.5, ISM has maintained it can be viewed as a direct byproduct of the ongoing supply chain issues.

Regarding how long these high prices and related inflation, could be looming, Nieves said that ISM respondents indicated that supply chain issues and a shortage of raw materials are not solely to blame for increased prices.

“It was also wage pressure, transportation costs, and fuel costs,” said Nieves. “They felt we may see some easing by the second quarter of 2022, which was the consensus a few months back. Now, though, it is being projected to be out even further, probably through the balance of 2022. I think we will get a better feel when the ISM Semiannual Report is issued. Right now, I don’t see any easing, because we are still playing catch-up. As much as it was labeled as transitory, there are just so many variables contributing to where we are.”

Looking ahead, Nieves said current services economy conditions could see some pullback in the coming months, with some leveling off in the next few months, noting it will be difficult to keep up with this current pace.