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ISM: Services Sector Sees 8-Straight Months of Growth

Services PMI exceeds expectations for January at 58.7%
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ISM: Services Sector Sees 8-Straight Months of Growth

The Institute for Supply Management (ISM) revealed shortly after the opening bell on Wednesday that the Services PMI exceeded expectations for January, hitting 58.7%. That's an advance of 1.0 percentage point and a beat over the expected 56.8% reading.

Formerly dubbed the Non-Manufacturing Index, the Services PMI tracks the service sector of the economy.

The report follows Monday's Purchasing Managers Index report, which can be found here, that also outpaced expectations, coming in at 60.5% vs. 60.0% expected.

Recall that any NMI reading above 50% represents expansion, while anything below 50% indicates a contraction. The higher the reading is above 50%, the faster the rate of growth. Additionally, according to the ISM, an NMI reading above 48.5%, over time, is usually indicative of an expansion of the overall economy. 

For perspective, over the past 12 months, the NMI has averaged 54.5% with a high of 58.7% and a low of 41.6%.

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Source: Institute of Supply Management, January 2021 Services ISM Report on Business

Overall, November marked the eighth month of expansion in both the non-manufacturing sector the overall economy as indicated by the NMI.

"The past relationship between the Services PMI and the overall economy indicates that the Services PMI for January (58.7%) corresponds to a 3.4% increase in real gross domestic product (GDP) on an annualized basis," said Anthony Nieves, chair of the Institute for Supply Management.

In addition to the headline reading, we have provided a breakdown of the trends below. Recall, just as with the headline reading, an index reading above 50 indicates expansion, while anything below 50 indicates a contraction. Also, monthly fluctuations above or below the 50-level threshold speak to the rate of change. For example, a move from 51 to 52 would indicate a faster rate of change, while a move from 48 to 49 would indicate a slow rate of contraction and vice versa.

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Source: Institute of Supply Management, January 2020 Non-Manufacturing ISM Report on Business

Digging deeper, 14 non-manufacturing industries reported growth in January, led by Real Estate, Rental & Leasing; Construction; Wholesale Trade; Finance & Insurance. Four industries reported a decrease in November including Arts, Entertainment & Recreation; Educational Services; Retail Trade; and Utilities.

Finally, to help members use this report to better gauge their own investments, we want to include a few quotes from ISM survey respondents in the various industries covered, pulled directly from the report (though we have put in bold select sections we believe members should take note of and made minor edits for style):

  • "Many of our restaurant locations remain completely shut down to on-site dining. We remain optimistic about business trends beyond April/May 2021. [We] have a very challenging few months to go." (Accommodation & Food Services)
  • "Orders for new business have picked up. Labor is still the major impediment to the business." (Construction)
  • "Seasonal reduction of activity due to winter break from campus activity." (Educational Services)
  • "Start of 2021 on track with a positive outlook." (Finance & Insurance)
  • "Increased number of Covid-19 patients has forced the cancellation of elective surgeries. Bed capacity limited." (Health Care & Social Assistance)
  • "The copper shortage is slowing deliveries of key network equipment." (Information)
  • "Still working under Covid-19 restrictions and uncertain political climate." (Mining)
  • "Overall, everything continues to be more optimistic; however, we are still seeing impacts from suppliers that are being affected by limiting staff due to Covid-19 restrictions." (Other Services)
  • "Post-holidays spending is up. Many capital projects and expenditures are coming to fruition." (Public Administration)
  • "Business outlook for 2021 looks better. Companies are optimistic that conditions will start improving by the end of the second quarter." (Retail Trade)
  • "Business outlook for 2021 is positive with projects and capital investments moving forward. Target financial objectives have been obtained." (Utilities)
  • Good start to the year; business has promising growth. Market conditions are still affected by logistics issues, both domestic and international. Also, prices for raw material prices and freight are increasing up, by 4% to 13%." (Wholesale Trade)

Members interested in digging even deeper can view the official release here: https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/january/.