Economic activity in the services sector advanced in January, reaching 53.4% in the Services PMI index, although retail lagged.
Produced by the Institute for Supply Management, the January purchasing managers index showed services sector expansion for the 13th consecutive month and in 43 of the past 44 months, with the lone contraction in December 2022. In the index, 50 is the dividing line between expansion and contraction.
In announcing the index results, Anthony Nieves, chair of the ISM Services Business Survey Committee, said, “In January, the Services PMI registered 53.4%, 2.9 percentage points higher than December’s seasonally adjusted reading of 50.5%. The composite index indicated growth in January for the 13th consecutive month after a seasonally adjusted reading of 49% in December 2022, which was the first contraction since May 2020. The Business Activity Index registered 55.8% in January, matching the seasonally adjusted reading of 55.8% in December. The New Orders Index expanded in January for the 13th consecutive month after contracting in December 2022 for the first time since May 2020. The figure of 55% is 2.2 percentage points higher than the seasonally adjusted December reading of 52.8%. The Supplier Deliveries Index registered 52.4%, 2.9 percentage points above the 49.5% recorded in December. The index returned to expansion, indicating that supplier delivery performance was slower after three consecutive months in contraction or faster territory. In the last 12 months, the average reading of 48.6%, with a low of 45.8% in March, reflects the fastest supplier delivery performance since December 2022, when the index registered 48.5%” Supplier Deliveries is the only ISM Report On Business index that is inversed as a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.
“The Prices Index registered 64% in January, a 7.3-percentage point increase from December’s seasonally adjusted reading of 56.7%,” Nieves pointed out. “The Inventories Index contracted in January, registering 49.1%, a decrease of 0.5 percentage point from December’s figure of 49.6%. The Inventory Sentiment Index – 59.3%, up four percentage points from December’s reading of 55.3% – expanded for the ninth consecutive month. The Backlog of Orders Index returned to expansion in January after two consecutive months in contraction, registering 51.4%, a two-percentage point increase compared to the December reading of 49.4%. The overall growth rate increase in January is attributable to faster growth of the New Orders, Employment, and Supplier Deliveries indexes. The majority of respondents indicate that business is steady. They are optimistic about the economy due to the potential impact of interest rate cuts; however, they are cautious due to inflation, associated cost pressures and ongoing geopolitical conflicts.”
With 10 industries in the services sector running over 50% in the index during January, he said, the Services PMI continued to demonstrate sustained growth in business and at a faster rate in the month. The 10 services industries reporting growth in January were Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Professional, Scientific & Technical Services; Public Administration; Utilities; Accommodation & Food Services; Construction; Other Services; Educational Services, and Management of Companies & Support Services. The seven industries reporting a decrease in the month of January were Information; Retail Trade; Real Estate, Rental & Leasing; Mining; Arts, Entertainment & Recreation; Wholesale Trade, and Finance & Insurance.
In contrast, the manufacturing sector contracted in January for the 15th consecutive month following one month of unchanged status, a PMI index reading of 50%, and 28 months of growth before that. The Manufacturing PMI registered 49.1% in January, up two percentage points from a seasonally adjusted 47.1% in December.
