The April ISM services index rose .7 pts m/o/m to 51.9 about as expected. This compares with 55.1 in February and 55.2 in January. After falling by 10 pts in March, new orders rose by 3.9 pts to 56.1. Backlogs were below 50 for a 2nd month but just below at 49.7. Inventories fell 5.6 pts to back under 50 at 47.2. Post ADP and ahead of Friday, the employment component fell .5 pt to just above 50 at 50.8 and just 8 of 18 industries are expanding payrolls. Export orders fell 18 pts in March and rose by 17.2 pts in April so discard that data point, and only a few service companies have exports. Supplier deliveries, rose 2.8 pts m/o/m though still below 50 at 48.6. Prices paid were little changed at 59.6, hovering around a two yr low and well off the peak of 84.5 in December 2021 but 15 of 18 industries are still paying up.
Of the 18 industries surveyed, 14 saw growth vs 13 in March. Three experienced a contraction (the other one saw no change) vs 5 in March. When looking at the ISM survey, it’s important to understand that compared with the S&P Global metric, ISM includes ag, mining, utilities, construction, retail and wholesale trade where S&P Global does not.
This was the bottom line from the ISM, “The majority of respondents are mostly positive about business conditions; however, some respondents are wary of potential headwinds associated with inflation and an economic slowdown.” I’ll add this, there is definitely relief, and for manufacturers too, that the challenged supply chain has gotten much better, easing the flow of what is needed. In fact, just 1 of 18 industries saw slower deliveries. The new challenge though is the demand side where visibility is growing cloudier. On the jobs side, on one hand ISM quoted a business saying “We continue to hire to build up our staffing levels.” On the other hand, a different business said “Attrition without backfills” summarizes their labor plans.
The S&P Global services PMI was 53.6, up 1 pt m/o/m. They said “Companies have reported an improvement in confidence compared to the gloomier picture seen late last year, with service sector companies also benefiting from a post-pandemic tailwind of spending shifting from goods to services, notably among consumers.” They did however include the caveats though that we are all growing well aware of, “Headwinds from higher interest rates and the increased costs of living, combined with the winding down of household savings, suggest the upturn could lose steam in the months ahead.”
Ahead of the FOMC meeting, they also said this, “there are indications that resurgent demand for services is reigniting inflationary pressures. Average rates charged for services are now rising at the sharpest rate for 8 months, as firms report a greater ability to pass increased costs on to customers.”
ISM Services
S&P Global Services