Home Economic Trends August Services-Sector Activity Expands, Price Pressures Ease – Robert Hughes

August Services-Sector Activity Expands, Price Pressures Ease – Robert Hughes

The Institute for Supply Management’s composite services index increased to 56.9 percent in August, rising 0.2 points from 56.7 percent in the prior month. The index remains above the neutral 50 threshold and suggests the 27th consecutive month of expansion for the services sector (see top of first chart). Participant’s comments suggest price and labor pressures continue though some easing is occurring, while others remain concerned amid signs of weakening demand and increased uncertainty.  

Among the key components of the services composite index, the business activity index gained 1.0 point to 60.9 (see top of first chart). That is the 27th month above 50. Eleven industries reported increased activity while three reported slower activity.

The services new-orders index rose to 61.8 percent from 59.9 percent in July, an increase of 1.9 percentage points. August was the best result since December 2021 (see bottom of first chart). The new orders index has been above 50 percent for 27 consecutive months.

The nonmanufacturing new-export-orders index, a separate index that measures only orders for export, also improved in August, coming in at 61.9 versus 59.5 percent in July. Six industries reported growth in export orders, with three reporting declines and nine reporting no change. However, for all respondents, only about 23 percent said they perform and track separate activity outside the US.

Backlogs of orders in the services sector likely grew again in August though the pace likely decelerated as the index decreased to 53.9 percent from 58.3 percent. August was the 20th month in a row with rising backlogs. Six industries reported higher backlogs in August, while five reported decreases.

The services employment index improved in August, rising just above the neutral 50 level, coming in at 50.2 percent, up from 49.1 percent in July. That is just the third time in the last seven months that the employment index was above neutral (see bottom of first chart). The mixed readings reflect a lack of supply rather than a lack of demand.

Eight industries reported employment growth, while seven reported a reduction. Respondents suggest qualified labor continues to be in short supply, but some noted slightly better labor conditions.

Supplier deliveries, a measure of delivery times for suppliers to nonmanufacturers, came in at 54.5 percent, down from 57.8 percent in the prior month (see top of second chart). It suggests suppliers are falling further behind in delivering supplies to the services business, but the slippage has decelerated from the prior month. The index has moved sharply lower since back-to-back readings above 75 in October and November 2021 and is at the lowest level since February 2020, just prior to the lockdown recession. The manufacturing sector survey matches the recent improvement (see top of second chart). For the services sector, twelve industries reported slower deliveries in August while three reported faster deliveries.

The nonmanufacturing prices paid index fell to 71.5 in August, the fourth consecutive decline from a record-high 84.6 percent in April (see bottom of second chart). Seventeen industries reported paying higher prices for inputs in August. Price pressures have eased somewhat for the services sector while the manufacturing sector has seen a significant decline in price pressures (see bottom of second chart). The latest the Institute of Supply Management report suggests that the services sector and the broader economy expanded for the 27th consecutive month in August. Respondents to the survey continue to highlight ongoing input price pressures, as well as materials and labor shortages though some of the respondents noted some signs of improvement. Respondents also reported signs of easing demand and concern about the economic outlook.