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Economy in Brief

U.S. ISM Services Index Recovers at Yearend
by Tom Moeller  January 7, 2021

• Service sector activity continues to trend sideways.

• Component activity remains mixed.

• Pricing power eases.

The Composite Index of Services Activity from the Institute for Supply Management rose to 57.2 during December after declining to 55.9 in November. A reading of 54.5 had been expected in the Action Economics Forecast Survey. During all of 2020, the index fell to 54.3 from a 2018 recovery peak of 59.0.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading which was released Tuesday. The composite index improved to 57.6 from 56.1, which was the lowest level since May. During the last 10 years, there has been a 54% 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 index of business activity rose to 59.4 from 58.0 in November. The reading remained below its July peak of 67.2. An improved 31% of respondents (NSA) reported better activity but a higher 18% reported deterioration. The new orders index edged up to 58.5 but remained below the record high of 67.7 recorded in July. The employment measure fell m/m to 48.2, its lowest level since August. A reduced 15% of respondents reported more hiring while a strengthened 19% reported fewer jobs. The supplier delivery series surged to 62.8 (NSA), indicating the slowest delivery speeds since May.

The prices index fell back to 64.8 last month after rising to 66.1 in November. The figure remained up from a low of 50.0 in March. A lessened 27% of respondents reported higher prices, while a reduced five percent reported price declines. The percentage reporting no change in prices rose m/m to 68%, but remained below 80% in February.

The export orders series surged to 57.3, its highest level in six months. The imports index fell to 51.8, but remained up from the March low of 40.2. The order backlogs index fell sharply to 48.7, its lowest level since May. 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) Dec Nov Oct Dec '19 2020 2019 2018
Services PMI 57.2 55.9 56.6 54.9 54.3 55.5 59.0
   Business Activity 59.4 58.0 61.2 52.3 55.9 58.0 61.7
   New Orders 58.5 57.2 58.8 56.7 55.8 57.5 61.4
   Employment 48.2 51.5 50.1 54.8 46.0 54.9 56.9
   Supplier Deliveries (NSA) 62.8 57.0 56.2 52.5 59.6 51.5 55.8
Prices Index 64.8 66.1 63.9 59.3 58.8 57.6 62.1
ISM Manufacturing and Services Composite 57.6 56.1 56.9 54.1 54.1 55.0 59.0
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