Services-Sector Activity Accelerated in November

The Institute for Supply Management’s composite services index increased to 56.5 percent in November, rising 2.1 points from 54.4 percent in the prior month. The index remains above the neutral 50 threshold and suggests the 30^th consecutive month of expansion for the services sector (see top of first chart). The November results are about in line with the average of 56.1 over the last seven months.  

Among the key components of the services composite index, the business activity index jumped 9.0 points to 64.7 (see top of first chart). That is the 30^th month above 50 and the highest result since December 2021. Thirteen industries reported increased activity, while one reported slower activity.

The services employment index rebounded in November, coming in at 51.5 percent, up from 49.1 percent in October. That is the fifth time in the last ten months that the employment index was above neutral, with an average of 50.3 percent over that period (see bottom of first chart).

Nine industries reported employment growth, while six reported a reduction. The report states, “Comments from respondents include: ‘Slow improvement in staffing levels’ and ‘Recruitment fairs have helped enable open positions to be filled.”

The services new-orders index fell to 56.0 percent from 56.5 percent in October, decreasing by 0.5 percentage points (see bottom of first chart). The new orders index has been above 50 percent for 30 consecutive months but is 2.7 points below the ten-year average of 58.7 percent.

The nonmanufacturing new-export-orders index, a separate index that measures only orders for export, plunged in November, coming in at 38.4 versus 47.7 percent in October and 65.1 in September, a 26.7-point, or 41 percent, decline over the last two months. Three industries reported growth in export orders, with eight reporting declines and seven reporting no change. However, of all respondents, only about 21 percent said they perform and track separate activity outside the US.

Backlogs of orders in the services sector likely grew again in November though the pace likely decelerated as the index decreased to 51.8 percent from 52.2 percent. November was the 23^rd month in a row with rising backlogs. Eight industries reported higher backlogs in November, while five reported decreases.

Supplier deliveries, a measure of delivery times for suppliers to nonmanufacturers, came in at 53.8 percent, down from 56.2 percent in the prior month (see top of second chart). It suggests suppliers are falling further behind in delivering supplies to the services business, but the slippage has decelerated from the prior month. After moving sharply lower since back-to-back readings above 75 in October and November 2021 and hitting the lowest level since February 2020 in September, the index posted a modest gain in October but fell to a new cycle low in the latest month. The result for the services sector has diverged sharply from the manufacturing sector in the last two months (see top of second chart). For the services sector, nine industries reported slower deliveries in November, while two reported faster deliveries.

The nonmanufacturing prices paid index fell slightly to 70.0 percent in November from 70.7 in the prior month. The index had posted five consecutive declines from a record-high 84.6 percent in April (see bottom of second chart). Sixteen industries reported paying higher prices for inputs in November. Price pressures have eased somewhat for the services sector, but the result over the last four months also diverges from the manufacturing sector results which has seen significant declines in price pressures (see bottom of second chart).

The latest Institute of Supply Management report suggests that the services sector and the broader economy expanded for the 30^th consecutive month in November. The report suggests that demand in nonmanufacturing industries remains stable and that there may be some modest improvement in employment conditions, supply chains, and logistics.