Report On Business® Roundup: October Services PMI™

By Dan Zeiger

As could be expected on a day in which the procurement and financial worlds — as well as everyone else — awaited the results of the U.S. presidential election, reaction to the release of the October Services ISM® Report On Business® on Wednesday was somewhat subdued.

Nevertheless, there was much to dissect in the report, which featured a Services PMI of 56.6 percent, indicating a fifth straight month of expansion for the sector. That figure was down 1.2 percentage points from the previous month (indicating slower growth) and missed analysts’ expectations. And the coronavirus (COVID-19) pandemic continues to hover: Many businesses remain below normal operations or full employment, have paid elevated prices for personal protective equipment (PPE) for employees, or are holding off on capital expenditures.

“The services sector is doing well, on the heels of what we’ve seen with the (increased activity) in the manufacturing sector,” Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® Services Business Survey Committee, told reporters in a conference call. He added, “Employment pulled back slightly. As much as jobs have grown since May, they are still not at pre-pandemic levels. … That’s putting a damper on the recovery.”

As usual in recent months, the Employment Index was a closely-watched number, especially with the private-payrolls report from ADP and Moody’s Analytics on Wednesday also failing to meet expectations and the federal jobs report looming on Friday. The index expanded for a second straight month, but at 50.1 percent, the growth was by a hair.

The biggest factors limiting services jobs growth, Nieves said, are such businesses as hotels, restaurants and theaters being unable to fully reopen, as well as shortage of workers for some construction trades. “And with the COVID-19 situation varying by municipality and state, it’s a mixed bag right now,” he said.

The Prices Index increased 4.9 percentage points to 63.9 percent. Fuel is typically a price driver for the services sector, and Nieves said that’s impacting such petroleum-based commodities as PPE, plastic products and polyvinyl chloride (PVC) products, all classified as up in price in October.

In other subindex developments:

  • The Supplier Deliveries Index registered 56.2 percent, an increase of 1.3 percentage points. Survey Committee respondents indicated that the slowing deliveries were due to capacity constraints and weather-related logistics issues, Nieves said.
  • After two months of contraction, the Inventories Index was at 53.1 percent, as many organizations rebuilt their stock levels following the start of the new fiscal year.
  • The New Export Orders Index (53.7 percent) recorded a third straight month of growth. “We’ve seen high levels of orders from Taiwan and China,” Nieves said.

The Report On Business® roundup:

Associated Press: Services Sector Expands for Fifth Straight Month. “Economists also saw positive signs in the report, but remained cautious about projecting too much into the future. ‘The outlook is less certain now that virus cases are surging,” said Rubeela Farooqi, chief U.S. economist at High Frequency Trading. “Risks are to the downside from new restrictions and closures that will weigh on demand and activity going forward.’ ”

Barron’s: Services Sector Growth Is Slowing, and Faces ‘Extreme Pressure’ Without Health Solution. “Many of the subindexes in the report showed a slowing trend that comes as many states across the country grapple with rising (COVID-19) infections. Still, respondents to ISM’s survey largely indicated cautious optimism about the recovery. ‘Services are healing from the pandemic shock, but the pace of recovery is moderating and likely to slow even further ahead,’ said Oren Klachkin, lead U.S. economist at Oxford Economics.”

Bloomberg: U.S. Service Industries Expand at Slowest Pace in Five Months. “While still at a healthy level, the index shows less momentum among service industries that include leisure and hospitality, dining and travel. A resurgence in coronavirus cases and the potential for tighter restrictions on business risks impacting service providers disproportionately.”

CNBC: ISM Non-Manufacturing Index Misses Expectations in October. “ISM Services, (measuring) the bigger swath of the U.S. economy, and this is a miss,” analyst Rick Santelli said. “We were looking for a number (around) 57.6 (percent) — 56.6, the weakest number since May, when it was 45.4 and started to move up. So, we do see that this is a step back. … Not the number we were expecting.”

MarketWatch: U.S. Service Economy Grows More Slowly in October After Latest Coronavirus Outbreak, ISM Finds. “Service-oriented companies in fields such as technology, finance, retail and health care employ the vast majority of Americans. After suffering a severe blow early in the coronavirus crisis, most of these industries have been on the mend. The persistence of the coronavirus, however, is likely to constrain growth in the months ahead and weigh heavily on certain businesses such as hotels and entertainment that rely on large crowds.”

Reuters: U.S. Service Sector Cools in October — ISM Survey. The services industry is being constrained by a shift in spending towards goods as the raging coronavirus pandemic keeps Americans at home, boosting the manufacturing sector. … Spiraling COVID-19 infections could force authorities to re-impose restrictions to slow the spread of the respiratory illness as winter approaches, undercutting spending.

The Wall Street Journal: U.S. Service Providers Saw Continued Growth in Activity in October. “Figures released over recent weeks show that the global economy rebounded strongly in the three months through September from the huge declines in output recorded in the second quarter, while not making up all of the losses suffered during the most stringent period of lockdowns and other restrictions in most countries.”

In case you missed Monday’s Report On Business® Roundup on the release of the October Manufacturing PMI®you can read it here. ISM’s Hospital PMI will be released on Friday. For the most up-to-date content on the three indexes under the ISM® Report On Business® umbrella, use #ISMPMI on Twitter.

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.