The ISM Services Purchasing Managers Index (PMI) helps determine the overall economic strength of the services sector. Components evaluated are employment, business activity, new orders, and supplier deliveries, which are then compiled into an index. The services sector represents a much larger share of the overall U.S. economy when compared to the manufacturing sector, making up approximately 80% of it; the sector’s economic weight makes it an important sign of growth, stagnation, or contraction. Readings above 50.0 indicate expansion while readings below 50.0 signal decline.
In September, the Services PMI rose by 0.2 points to a level of 61.9, beating market expectations of 60.0. This marks the sixteenth consecutive month of expansion for the services sector and for the overall economy. Seventeen out of the eighteen industries that make up the index reported growth, with only agriculture and fishing reporting a contraction.
The index is composed of ten different sub-indexes that measure different aspects of the services sector. Five of these indices rose last month, while the remaining five declined. The supplier deliveries index declined by 0.8, indicating that transportation bottlenecks continue to increase, resulting in longer lead times for materials. Prices paid by the services sector continued to surge, with the corresponding sub-index rising by 2.1 points. Prices have increased by 20.7% year-to-date, highlighting the inflationary pressures that plague the economy. Demand remains robust for the services sector despite all the supply chain challenges. Given that inventories remain at historically low levels, demand is likely to remain strong for the foreseeable future.
October 7, 2021