US ISM Services Index Nov: 69.1 (Est 65.0; Prev 66.7) - ISM Services Continue To Push Into Record Territory - Neil's Summary

US ISM Services Index Nov: 69.1 (est 65.0; prev 66.7)

rob202111svcs.pdf (ismworld.org)

I said that October ISM stayed "blazing hot". Well, Nov ISM services (larger companies than Markit) went further into record high territory up 2.4 points to 69.1. I guess "inferno"? Estimates were for 65. It was the 18th straight month of growth. This was despite only production (business activity), employment and inventories making gains. All other areas were flat or decelerated. But all areas remained above 50 (indicating expansion) other than inventories and inventory sentiment. Production is over 70 and new orders is three tenths away from that level. Backlogs are 65. Prices though remained over 80 (and supplier deliveries above 70). Just very hot conditions.

All 18 industries came in over 50. All commodities except for lumber and exam gloves increased in price. Here was the commentary:

Economic activity in the services sector grew in November for the 18th month in a row — with the Services PMI® setting a record for the fifth time in 2021 — 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: “In November, the Services PMI® registered another all-time high of 69.1 percent, 2.4 percentage points above October’s reading of 66.7 percent, the former all-time high. Previous records were set in March (63.7 percent), May (64 percent) and July (64.1 percent). The data quickly explains the elevated Services PMI® reading, as two of the four equally weighted subindexes that directly factor into the composite index set or tied all-time highs. The Business Activity Index reached 74.6 percent, an increase of 4.8 percentage points compared to the reading of 69.8 percent in October, and the New Orders Index registered 69.7 percent, the same reading as last month’s figure. (The other two subindexes are Employment and Supplier Deliveries; both also contributed positively to the Services PMI® in November.)

“The Supplier Deliveries Index registered 75.7 percent, the same reading as in October. The all-time high is 78.3 percent, recorded in April 2020. (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.)

“Demand continues to be strong, reflected by two other subindexes in November. The Backlog of Orders Index registered 65.9 percent, 1.4 percentage points lower than October’s all-time high reading of 67.3 percent. The Prices Index reached its third-highest reading ever at 82.3 percent, down 0.6 percentage point from the October figure of 82.9 percent. Services businesses continue to struggle replenishing inventories, as the Inventories Index (48.2 percent, up 6 percentage points from October’s reading of 42.2 percent) and the Inventory Sentiment Index (an all-time low of 36.4 percent, down 0.9 percentage point from the previous month’s figure of 37.3 percent) stayed in contraction or 'too low' territory n November.”

Nieves continues, “According to the Services PMI®, all 18 services industries reported growth. The composite index indicated growth for the 18th consecutive month after a two-month contraction in April and May 2020. In November, record growth continued for the services sector, which has expanded for all but two of the last 142 months. Demand continues to outpace supply that has been impacted by capacity constraints, shortages of labor and materials, and logistical challenges. This has also caused demand-pull inflation that is affecting overall business conditions.”

All 18 services industries reporting growth in November — listed in order — are: 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.

Here are the comments. Again this month demand remains robust and it's supply chains that are holding things back.

• “Labor shortages, transportation delays and supply constraints/allocations.” [Accommodation & Food Services]
• “Business is greater than in the past. Supply chain issues persist, but we’re evolving to overcome or manage them better than in the past.” [Agriculture, Forestry, Fishing & Hunting]
• “Some food products that we have contracts on have been unavailable. Substitutes are always higher in cost.” [Arts, Entertainment & Recreation]
• “Construction material shortages and longer lead times continue to hamper operations. Significant cost increases from labor and freight are forecast for the start of next year.” [Construction]
• “As an institution of higher education, maintaining the safety, health and security of thousands of students, faculty and staff while allowing classes to continue in person and virtually has been a juggling act. We have been faced with multiple shortages on everything from personal protective equipment (PPE) to computers and peripherals, and vehicles. Shipments are taking longer and prices continue to climb, putting additional strain on (already) stressed budgets.” [Educational Services]
• “Seeing inflationary forces in the marketplace, which is resulting in suppliers raising their prices moving into 2022.” [Finance & Insurance]
• “COVID-19 patients continue to impact census and procedures. Supplies continue to be difficult to obtain at times.” [Health Care & Social Assistance]
• “Suppliers continue to report that labor shortages are leading to production issues and delays. In some areas, sufficient raw materials and capacity exist, but labor is the gating factor. Continued inflationary pressures driven by the cost of fuel, shipping capacity constraints, and imbalances in supply and demand are impacting a broad spectrum of products.” [Management of Companies & Support Services]
• “Late deliveries and shortages continue. Disruptions seem to be declining somewhat, as suppliers and customers are finding innovative ways to keep supplies moving.” [Public Administration]
• “Continuing struggle with transportation capacity.” [Retail Trade]
• “The COVID-19 surge, inventory shortages, driver and maintenance worker shortages, and long lead times for materials are straining our system. This limits our ability to keep vehicles on the road and necessary services running on schedule.” [Transportation & Warehousing]
• “Inflation and supply chain issues have caused cost increases and stockouts, but sales continue to be strong, with a positive outlook for the next quarter and beyond.” [Wholesale Trade]

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