In just more than five years of data collection for the Hospital ISM® Report On Business®, the numbers suggest that the composite index is less susceptible to surprise volatility than its Manufacturing and Services counterparts.
Everyone needs health care at some point, so demand, the primary driver of business activity, figures to be consistent. That dynamic has been reflected in the Hospital PMI®, which had been in contraction territory just twice — April and May 2020, when the coronavirus pandemic paused non-emergency treatment.
So, the composite index reading of 49.1 percent in May, a 6.2-percentage point decrease compared to the previous month, came out of left field. “There is a lot to unpack, obviously,” Nancy LeMaster, MBA, Chair of the Institute for Supply Management® Hospital Business Survey Committee, told a conference call of reporters on Wednesday.
Decreases in business activity, new orders and employment were a bad prescription for #healthcare facilities in May, the Hospital @ISM® Report On Business® found. The PMI® was 49.1%, in contraction territory for just the third time ever. https://t.co/H4COlD2tF6 #ISMPMI #economy— Institute for Supply Management (@ism) June 7, 2023
As this space has often detailed, one of the most user-friendly aspects of the Report On Business® is that when there’s a surprise decrease (or increase) in the headline number, a quick glance at the subindex data reveals why it happened. That was the case in May, with a combined 24.5-percentage point drop in the four subindexes (Business Activity, New Orders, Employment and Supplier Deliveries) that directly factor into the PMI®.
Why those indexes fell is another question, one that might not be fully answered until the June data comes in. It’s extremely rare for health-care demand to drop so unexpectedly, LeMaster said. And while the New Orders Index went into contraction, she added, a majority of Business Survey Committee panelists that commented on patient volumes in May indicated an increase at their facilities.
“There’s no real clear reason at this point,” LeMaster said. “I could make up a bunch, but it would be just conjecture at this time. Remember, we’re measuring month-over-month activity, and April was a strong month, so perhaps May just didn’t feel as strong by comparison.”
There’s no anecdotal evidence for alarm, she added. “I regularly talk to (executives in) about a half-dozen hospital systems, but they’re pretty large and well geographically dispersed,” LeMaster said. “None of them have been concerned with patient volumes.”
LeMaster identified two likely explanations. First, the Backlog of Orders Index (down 9.5 percentage points in May, into contraction territory) does not directly factor into the PMI®, but the activity it measures can. When facilities work down backlogged procedures and treatments, capacity increases — which in May could have created a perception of lower business activity.
Second, a panelist commented that the Memorial Day weekend and the start of summer employee vacation season might have impacted patient scheduling.
“Those that work in supply chains and finances pay a lot of attention to the number of working days in the month,” LeMaster said. “It’s interesting that really hasn't come up in our survey until this month. But as the shift from COVID-19 and respiratory care into more elective procedures continues, (scheduling) is going to be more sensitive to the business day metric.”
After a 9.5-percentage point decrease the previous month, the Employment Index fell another 4 points in May to land in contraction territory. LeMaster said many facilities are still struggling to hire clinical staff, and labor costs have contributed to hiring slowdowns or freezes for nonclinical positions like accounting and food service.
May was a month of big backlog declines, with a combined 23.9-percentage point plunge in the Manufacturing, Services and Hospital #ISMPMI Backlog of Orders Index. (Note: the Hospital index measures patient treatments, not products.) https://t.co/9Pc7XofHuR #economy #healthcare— Dan Zeiger (@ZeigerDan) June 7, 2023
In other subindex news:
- The Supplier Deliveries Index was in contraction — indicating faster delivery performance — for a record fourth month in a row.
- The Prices: Pharmaceuticals Index fell 4 percentage points to below 60 percent. However, the other two prices gauges, the Prices Index and Prices: Supplies Index, remained above 65 percent, indicating that inflation relief in the manufacturing and services sectors has yet to be felt among health-care facilities.
- The Days Payable Outstanding Index (46 percent) contracted for the third straight month, which could be indicative of margin pressures and/or strained accounts payable staffs. LeMaster said the June reading should provide more insight.
However, all eyes on the June data will be regarding demand. When the Services PMI® unexpectedly contracted in December, it turned out to be a one-off. The history of the Hospital PMI® suggests a similar rebound is likely, but there are no guarantees in the COVID-19 era.
“People in the field are still feeling positive that we’re not seeing a long-term pullback of demand,” LeMaster said, “so we’ll just have to wait and see what June brings us. (May) was still a good supply chain month, even with the questions on the demand side. But one month is not necessarily a trend.”
For the most up-to-date content on the three indexes in the ISM® Report On Business® family, use #ISMPMI on Twitter.