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ISM: December 2022 Services PMI 49.6%

January 10, 2023

Economic activity in the services sector contracted in December after 30 consecutive months of growth with the Services PMI registering 49.6 percent 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 December, the Services PMI registered 49.6 percent, 6.9 percentage points lower than November's reading of 56.5 percent. The composite index contracted for the first time since May 2020, when it registered 45.2 percent. The Business Activity Index registered 54.7 percent, a substantial 10 percentage point decrease compared to the reading of 64.7 percent in November. The New Orders Index contracted in December for the first time since May 2020; the figure of 45.2 percent is 10.8 percentage points lower than the November reading of 56 percent.

"The Supplier Deliveries contracted in December, indicating faster performance. The index registered 48.5 percent, 5.3 percentage points lower than the 53.8 percent reported in November. (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.)

"The Prices Index was down 2.4 percentage points in December, to 67.6 percent. The Inventories Index contracted for the seventh consecutive month; the reading of 45.1 percent is down 2.8 percentage points from November's figure of 47.9 percent. The Inventory Sentiment Index (55.9 percent, up 11.7 percentage points from November's reading of 44.2 percent) returned to expansion after four straight months in contraction.

"According to the Services PMI, 11 industries reported growth. The composite index ended a 30-month period of growth, contracting for the first time since two straight months of sub-50 percent readings in April and May 2020. Of the four subindexes that directly factor into the Services PMI, three New Orders, Employment and Supplier Deliveries contracted in December. Prior to the current contraction in the services sector, the PMI indicated growth for all but two of the previous 154 months, including a faster rate of expansion in November."

Nieves continues, "Business Survey Committee respondents indicated that supplier deliveries were faster in December, based on increased capacity and improved logistics. Employment contracted due to a combination of decreased hiring due to economic uncertainty and an inability to backfill open positions. The holiday season contributed to the continued growth in business activity, albeit at a slower rate." 

INDUSTRY PERFORMANCE
The 11 services industries reporting growth in December listed in order are: Retail Trade; Health Care & Social Assistance; Utilities; Public Administration; Arts, Entertainment & Recreation; Mining; Accommodation & Food Services; Transportation & Warehousing; Management of Companies & Support Services; Professional, Scientific & Technical Services; and Finance & Insurance. The six industries reporting a decrease in the month of December listed in order are: Real Estate, Rental & Leasing; Wholesale Trade; Other Services; Information; Construction; and Educational Services. 

WHAT RESPONDENTS ARE SAYING

  • "Business is slower than usual. Seems to be a three- or four-month trend. We expect it to pick up after the first of the year." [Agriculture, Forestry, Fishing & Hunting]
  • "Residential new construction continues to be hindered by higher interest rates, slowing sales dramatically. A shift to rental projects seems to be a trend for all builders." [Construction]
  • "We're dealing with inflation, increasing labor costs, longer lead times and the higher education sector struggling to retain employees." [Educational Services]
  • "Business conditions for year-end 2022 are good, but not great. Preparing for a possible recession in 2023, but with some optimism in the overall economy." [Finance & Insurance]
  • "Continue to see product pricing, staffing and labor cost increases across the board, with almost no easy savings opportunities in our supply chain operation. Feel that this will be the standard in 2023." [Health Care & Social Assistance]
  • "Electronic component supply is becoming much better week by week." [Information]
  • "Activity level remained flat as we began to round out the year." [Mining]
  • "Seeing continual slowing of orders, along with a more receptive supply base." [Professional, Scientific & Technical Services]
  • "We are optimistic, although concerned, about continued inflation pressures, lead times that remain well above typical and supply chain issues that just won't go away. Increasing interest rates are dampening the residential housing construction market, which only adds to the concerns." [Real Estate, Rental & Leasing]
  • "Higher-than-average increases in end-of-year software and support renewals due to increased labor and economy costs." [Retail Trade]
  • "We are in the busiest season of the year in our business, and inflation is definitely putting the squeeze on our margins." [Wholesale Trade]

ISM SERVICES SURVEY RESULTS AT A GLANCE

COMPARISON OF ISM SERVICES AND ISM MANUFACTURING SURVEYS

DECEMBER 2022

Index

 Services PMI

Manufacturing PMI

Series
Index

Dec

Series
Index

Nov

Percent
Point
Change

Direction

Rate of
Change

Trend*

(Months)

Series
Index

Dec

Series
Index

Nov

Percent
Point
Change

Services
PMI

49.6

56.5

-6.9

Contracting

From
Growing

1

48.4

49.0

-0.6

Business
Activity/

Production

54.7

64.7

-10.0

Growing

Slower

31

48.5

51.5

-3.0

New Orders

45.2

56.0

-10.8

Contracting

From
Growing

1

45.2

47.2

-2.0

Employment

49.8

51.5

-1.7

Contracting

From
Growing

1

51.4

48.4

+3.0

Supplier
Deliveries

48.5

53.8

-5.3

Faster

From
Slowing

1

45.1

47.2

-2.1

Inventories

45.1

47.9

-2.8

Contracting

Faster

7

51.8

50.9

+0.9

Prices

67.6

70.0

-2.4

Increasing

Slower

67

39.4

43.0

-3.6

Backlog of
Orders

51.5

51.8

-0.3

Growing

Slower

24

41.4

40.0

+1.4

New Export
Orders

47.7

38.4

+9.3

Contracting

Slower

3

46.2

48.4

-2.2

Imports

52.7

59.5

-6.8

Growing

Slower

4

45.1

46.6

-1.5

Inventory
Sentiment

55.9

44.2

+11.7

Too High

From
 Too Low

1

N/A

N/A

N/A

Customers'
Inventories

N/A

N/A

N/A

N/A

N/A

N/A

48.2

48.7

-0.5

OVERALL ECONOMY

Contracting

From
Growing

1


 

Services Sector

Contracting

From
Growing

1


 

Services ISM Report On Business data is seasonally adjusted for the Business Activity, New Orders, Employment and Prices indexes. Manufacturing ISM Report On Business data is seasonally adjusted for New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE, AND IN SHORT SUPPLY

Commodities Up in Price
Chemicals; Diesel Fuel (3); Electrical Components (23); Food; Food and Beverages; Labor (25); and Transformers.

Commodities Down in Price
Freight; Fuel (5); Gasoline (5); Lumber; and Oriented Strand Board (OSB).

Commodities in Short Supply
Appliances; Brass Fittings; Chemicals (2); Construction Materials; Electrical Components; Labor (2); Labor Construction; Pallets; Transformers (4); Valves; and Vehicles (6). 

Note: The number of consecutive months the commodity is listed is indicated after each item.

DECEMBER 2022 SERVICES INDEX SUMMARIES

Services PMI

In December, the Services PMI registered 49.6 percent, a 6.9-percentage point decrease compared to the November reading of 56.5 percent. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates it is generally contracting.

A Services PMI above 50.1 percent, over time, generally indicates an expansion of the overall economy. Therefore, the December Services PMI indicates the overall economy is contracting after a preceding period of 30 months of growth. Nieves says, "The past relationship between the Services PMI and the overall economy indicates that the Services PMI for December (49.6 percent) corresponds to a 0.2-percent decrease in real gross domestic product (GDP) on an annualized basis."

SERVICES PMI HISTORY

Month

Services PMI

Month

Services PMI

Dec 2022

49.6

Jun 2022

55.3

Nov 2022

56.5

May 2022

55.9

Oct 2022

54.4

Apr 2022

57.1

Sep 2022

56.7

Mar 2022

58.3

Aug 2022

56.9

Feb 2022

56.5

Jul 2022

56.7

Jan 2022

59.9

Average for 12 months 56.2

High 59.9

Low 49.6

Business Activity

ISM's Business Activity Index registered 54.7 percent in December, a notable decrease of 10 percentage points from the reading of 64.7 percent in November, indicating growth for the 31st consecutive month. Comments from respondents include: "Sales have increased" and "Holiday demand."

The 11 industries reporting an increase in business activity for the month of December listed in order are: Retail Trade; Mining; Health Care & Social Assistance; Accommodation & Food Services; Public Administration; Management of Companies & Support Services; Utilities; Transportation & Warehousing; Finance & Insurance; Educational Services; and Construction. The four industries reporting a decrease in business activity for the month of December are: Real Estate, Rental & Leasing; Other Services; Wholesale Trade; and Information.

Business Activity

%Higher

%Same

%Lower

Index

Dec 2022

27.1

50.1

22.8

54.7

Nov 2022

33.4

56.9

9.7

64.7

Oct 2022

28.8

53.0

18.2

55.7

Sep 2022

32.5

56.7

10.8

59.1

New Orders

ISM's New Orders Index registered 45.2 percent, down a notable 10.8 percentage points from the November reading of 56 percent. New orders contracted after 30 consecutive months of growth. Comments from respondents include: "High interest rates for mortgages have slowed sales dramatically" and "Orders from customers are softening, and some orders are being canceled."

Five industries reported growth of new orders in December: Transportation & Warehousing; Health Care & Social Assistance; Management of Companies & Support Services; Retail Trade; and Utilities. The eight industries reporting a decrease in new orders in December  listed in order are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Other Services; Information; Educational Services; Wholesale Trade; Construction; and Professional, Scientific & Technical Services.

New Orders

%Higher

%Same

%Lower

Index

Dec 2022

19.1

49.4

31.5

45.2

Nov 2022

30.4

49.6

20.0

56.0

Oct 2022

29.3

52.1

18.6

56.5

Sep 2022

36.8

52.4

10.8

60.6

Employment

Employment activity in the services sector contracted in December after growing in November. ISM's Employment Index registered 49.8 percent, down 1.7 percentage points from the November reading of 51.5 percent. Comments from respondents include: "We have lost employees due to normal attrition and are having issues backfilling positions" and "Our company has tightened hiring of new employees month over month, due to uncertainty around the strength of the economy going into 2023."

The five industries reporting an increase in employment in December are: Arts, Entertainment & Recreation; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; and Professional, Scientific & Technical Services. The four industries reporting a decrease in employment in December are: Management of Companies & Support Services; Real Estate, Rental & Leasing; Wholesale Trade; and Health Care & Social Assistance. Nine industries reported no change in employment.

Employment

%Higher

%Same

%Lower

Index

Dec 2022

19.4

59.7

20.9

49.8

Nov 2022

21.3

57.9

20.8

51.5

Oct 2022

21.3

54.2

24.5

49.1

Sep 2022

23.7

58.4

17.9

53.0

Supplier Deliveries

The Supplier Deliveries Index registered 48.5 percent, down 5.3 percentage points from the 53.8 percent recorded in November. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. Comments from respondents include: "With demand falling, orders are being moved up or made available quicker" and "Supply chain catching up to demand."

The five industries reporting slower deliveries in December are: Management of Companies & Support Services; Public Administration; Utilities; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The seven industries reporting faster supplier deliveries for the month of December  listed in order are: Transportation & Warehousing; Wholesale Trade; Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Finance & Insurance; and Construction. Six industries reported no change in supplier deliveries.

Supplier Deliveries

%Slower

%Same

%Faster

Index

Dec 2022

8.4

80.1

11.5

48.5

Nov 2022

17.8

71.9

10.3

53.8

Oct 2022

18.8

74.8

6.4

56.2

Sep 2022

18.1

71.6

10.3

53.9

Inventories

The Inventories Index contracted in December for the seventh consecutive month after four straight months of growth preceded by an eight-month period of contraction. The reading of 45.1 percent was a 2.8-percentage point decrease from the 47.9 percent reported in November. Of the total respondents in December, 45 percent indicated they do not have inventories or do not measure them. Comments from respondents include: "Trying to lower inventory for calendar year end" and "Still working through excess supply."

The six industries reporting an increase in inventories in December listed in order are: Arts, Entertainment & Recreation; Accommodation & Food Services; Utilities; Agriculture, Forestry, Fishing & Hunting; Public Administration; and Health Care & Social Assistance. The seven industries reporting a decrease in inventories in December listed in order are: Real Estate, Rental & Leasing; Management of Companies & Support Services; Construction; Educational Services; Information; Professional, Scientific & Technical Services; and Wholesale Trade.

Inventories

%Higher

%Same

%Lower

Index

Dec 2022

13.5

63.1

23.4

45.1

Nov 2022

17.2

61.4

21.4

47.9

Oct 2022

17.3

59.8

22.9

47.2

Sep 2022

14.2

59.8

26.0

44.1

Prices

Prices paid by services organizations for materials and services increased in December for the 67th consecutive month, with the index registering 67.6 percent, 2.4 percentage points lower than the 70 percent recorded in November. The Prices Index continues to indicate movement toward equilibrium, with a sixth consecutive reading near or below 70 percent, following nine straight months of readings above 80 percent.

Fifteen services industries reported an increase in prices paid during the month of December, in the following order: Public Administration; Information; Health Care & Social Assistance; Management of Companies & Support Services; Retail Trade; Utilities; Professional, Scientific & Technical Services; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Other Services; Educational Services; Finance & Insurance; Transportation & Warehousing; Construction; and Wholesale Trade. No industry reported a decrease in prices for December.

Prices

%Higher

%Same

%Lower

Index

Dec 2022

33.8

58.3

7.9

67.6

Nov 2022

42.7

50.7

6.6

70.0

Oct 2022

47.5

45.6

6.9

70.7

Sep 2022

42.6

51.2

6.2

68.7

NOTE: Commodities reported as up in price and down in price are listed in the commodities section of this report.

Backlog of Orders

The ISM Services Backlog of Orders Index grew in December for the 24th consecutive month. The index registered 51.5 percent, 0.3 percentage point lower than the November reading of 51.8 percent. Of the total respondents in December, 55 percent indicated they do not measure backlog of orders. Respondent comments include: "Slowing customer demand, combined with increased supplier shipments and more availability" and "Many suppliers are catching up in their deliveries."

The six industries reporting an increase in order backlogs in December listed in order are: Arts, Entertainment & Recreation; Other Services; Health Care & Social Assistance; Transportation & Warehousing; Finance & Insurance; and Utilities. The four industries reporting a decrease in order backlogs in December are: Wholesale Trade; Construction; Educational Services; and Professional, Scientific & Technical Services. Eight industries reported no change.

Backlog of Orders

%Higher

%Same

%Lower

Index

Dec 2022

15.6

71.8

12.6

51.5

Nov 2022

19.4

64.7

15.9

51.8

Oct 2022

25.2

53.9

20.9

52.2

Sep 2022

23.2

58.5

18.3

52.5

New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based companies contracted in December for the third consecutive month after an eight-month period of growth. The New Export Orders Index registered 47.7 percent, a 9.3-percentage point increase from the 38.4 percent reported in November. Of the total respondents in December, 73 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.

The seven industries reporting an increase in new export orders in December  listed in order are: Retail Trade; Accommodation & Food Services; Finance & Insurance; Professional, Scientific & Technical Services; Educational Services; Transportation & Warehousing; and Wholesale Trade. The four industries reporting a decrease in new export orders in December are: Real Estate, Rental & Leasing; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; and Information. Seven industries indicated no change in new export orders in December.

New Export Orders

%Higher

%Same

%Lower

Index

Dec 2022

15.0

65.3

19.7

47.7

Nov 2022

9.1

58.6

32.3

38.4

Oct 2022

15.1

65.1

19.8

47.7

Sep 2022

35.0

60.2

4.8

65.1

Imports

The Imports Index grew for the fourth consecutive month in December after three previous months of contraction, registering 52.7 percent, down 6.8 percentage points from November's reading of 59.5 percent. Seventy-two percent of respondents reported that they do not use, or do not track the use of, imported materials.

The five industries reporting an increase in imports for the month of December are: Accommodation & Food Services; Management of Companies & Support Services; Retail Trade; Transportation & Warehousing; and Professional, Scientific & Technical Services. The three industries that reported a decrease in imports in December are: Agriculture, Forestry, Fishing & Hunting; Information; and Wholesale Trade. Ten industries reported no change in imports in December.

Imports

%Higher

%Same

%Lower

Index

Dec 2022

9.0

87.3

3.7

52.7

Nov 2022

25.3

68.4

6.3

59.5

Oct 2022

5.7

89.3

5.0

50.4

Sep 2022

10.1

82.4

7.5

51.3

Inventory Sentiment

The ISM Services Inventory Sentiment Index grew in December after four straight months of contraction. The index registered 55.9 percent, a 11.7-percentage point increase from November's figure of 44.2 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels.

The nine industries reporting sentiment that their inventories were too high in December  listed in order are: Wholesale Trade; Arts, Entertainment & Recreation; Construction; Utilities; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Mining; Information; and Health Care & Social Assistance. The three industries reporting a feeling that their inventories were too low in December are: Real Estate, Rental & Leasing; Management of Companies & Support Services; and Educational Services. Six industries reported no change in inventory sentiment.

Inventory Sentiment

%Too High

%About Right

%Too Low

Index

Dec 2022

21.4

69.0

9.6

55.9

Nov 2022

16.8

54.7

28.5

44.2

Oct 2022

19.7

53.4

26.9

46.4

Sep 2022

18.9

56.5

24.6

47.2

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