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Economy in Brief

U.S. ISM Services Index Improves During January
by Tom Moeller  February 3, 2021

• Service sector activity improves for third straight month.

• Component activity remains mixed.

• Pricing power is little changed.

The Composite Index of Services Activity from the Institute for Supply Management rose to 58.7 during January after increasing to 57.7 during December. It was the highest level since February 2019. A reading of 56.8 had been expected in the Action Economics Forecast Survey.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading which was released Monday. The composite index improved to 58.7 from 58.0 and moved to the highest level since November 2018. During the last 10 years, there has been a 61% correlation between the index level and the q/q change in real GDP. The composite is based on GDP shares.

Changes in the component series remained mixed last month. The new orders index rose to 61.8 from 58.6 during December. It was the highest level in six months. The employment measure rebounded m/m to 55.2, its highest level since February 2020 and up from 29.7 in April. An improved 16% of respondents reported more hiring while a greatly lessened 11% reported fewer jobs. These increases were offset by a decline in the business activity reading to 59.9 from 60.5 in December. The reading remained below its June peak of 63.9. A lessened 30% of respondents (NSA) reported better activity and a higher 19% reported deterioration. The supplier delivery series fell to 57.8 after surging to 62.8 (NSA) in December and indicated quicker delivery speeds.

The prices index eased to 64.2 last month after rising to 64.4 in December. The figure remained up from a low of 50.9 in March. An increased 32% of respondents reported higher prices, while a steady five percent reported price declines. The percentage reporting no change in prices fell m/m to 63% and remained well below its 80% high in February of last year.

The export orders series fell sharply to 47.0, its lowest level since May and the first below the break-even level of 50 in six months. The imports index edged higher to 53and remained up from the March low of 40.2. The order backlogs index rose to 50.9 from 48.7. These series are not seasonally adjusted and are not included in the nonmanufacturing composite.

The ISM figures are available in Haver's USECON database, with additional detail in the SURVEYS database. The expectations figure from Action Economics is in the AS1REPNA database.

ISM Services Survey (SA) Jan Dec Nov Jan '20 2020 2019 2018
Services PMI 58.7 57.7 56.8 55.9 54.3 55.5 59.0
   Business Activity 59.9 60.5 59.6 60.6 55.8 58.0 61.6
   New Orders 61.8 58.6 59.0 57.2 55.6 57.6 61.5
   Employment 55.2 48.7 51.5 54.0 46.0 55.0 56.9
   Supplier Deliveries (NSA) 57.8 62.8 57.1 51.8 59.7 51.5 55.8
Prices Index 64.2 64.4 63.9 55.8 58.6 57.5 62.0
ISM Manufacturing and Services Composite 58.7 58.0 56.9 55.4 54.1 55.0 58.9
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