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Economy in Brief

U.S. ISM Services Index Surges to Record High in March
by Tom Moeller  April 5, 2021

• Surprising strength led by business activity & new orders.

• Employment bounces back.

• Pricing improves to 2008 high as delivery speeds slow.

Service sector activity strengthened last month along with the factory sector, as reported last Thursday. The Composite Index of Services Activity from the Institute for Supply Management jumped to a record 63.7 during March after falling to 55.3 in February. (The series dates back to July 1997.) A rise in the index to 58.5 had been expected in the Action Economics Forecast Survey.

One survey respondent indicated "Widespread supply chain issues. Suppliers are struggling to manage demand and capacity in the face of chronic logistics and labor issues. No end in sight."

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. The composite index also strengthened to a record 63.8 from 55.9 in February. During the last 10 years, there has been a 52% correlation between the index level and the q/q change in real GDP. The composite is based on GDP shares.

Changes in the services sub-index series were all positive in March. The business activity reading jumped to a record 69.4 from 55.5 in February. An improved 42% of respondents reported higher activity and a lessened eight percent reported a reduced level. The new orders index also strengthened to a record 67.2 last month from 51.9 during February. The employment measure rose to 57.2 after falling to 52.7 in February. It was the highest reading since May 2019. An increased 23% of respondents reported more hiring while a lessened 11% reported fewer jobs. Indicating slower delivery speeds, the supplier delivery series rose slightly to 61.0 from 60.8. The reading has been trending higher for roughly two years.

The prices index strengthened to 74.0 last month after rising to 71.8 in February. The figure compared to a low of 50.9 in March 2020. A strong 52% of respondents reported higher prices, the most since May 2011, while a negligible one percent reported price declines. The percentage reporting no change in prices fell sharply to 47% and remained well below its 80% high in February of last year.

The export orders series eased to 55.5 but remained up from 47.0 in January. The imports index was fairly steady at 50.7, close to its lowest level since September. The order backlogs index fell sharply to 50.2, a three-month low. 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) Mar Feb Jan Mar '20 2020 2019 2018
Services PMI 63.7 55.3 58.7 53.6 54.3 55.5 59.0
   Business Activity 69.4 55.5 59.9 48.8 55.8 58.0 61.6
   New Orders 67.2 51.9 61.8 55.4 55.6 57.6 61.5
   Employment 57.2 52.7 55.2 48.1 46.0 55.0 56.9
   Supplier Deliveries (NSA) 61.0 60.8 57.8 62.1 59.7 51.5 55.8
Prices Index 74.0 71.8 64.2 50.9 58.6 57.5 62.0
ISM Mfg. & Services (Haver Composite) 63.8 55.9 58.7 53.2 54.1 55.0 58.9
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