Home Supply Management News & Reports News & Publications Inside Supply Management Magazine Blog 2024 2024-10 Report On Business® Roundup: September Services PMI®
Articles

Report On Business® Roundup: September Services PMI®

October 03, 2024
By Dan Zeiger

Before the release of the Services ISM® Report On Business® on Thursday, the consensus forecast for the September composite index reading was not much higher than its actual figure the previous month: 51.5 percent.

However, thanks to big boosts in business activity and new orders — and despite employment going into contraction — the Services PMI® blew by those projections, registering 54.9 percent, its highest figure since February 2023. That gave Treasury yields, the Dow Jones Industrial Average and the S&P 500 a jolt in the 10 a.m. ET hour, though the two markets were down overall in the afternoon.

“Let’s start with the numbers most likely making (markets) move higher,” analyst Rick Santelli said on CNBC after the data was released. “ISM Services for September; we were expecting a number around 51.7 percent, and last month was 51.5 percent. Zoom, zoom, zoom — 54.9 percent, the best since February of last year, when it was 55 percent. … That grouping of numbers in (the PMI® data) is most likely accounting for the pop in yields.”

What put such a spring in the step of the services sector? Before diving in, it’s critical to note that the September data was collected before Hurricane Helene hit the Southeast, the longshoremen’s strike at ports on the East and Gulf coasts, and more geopolitical turbulence in the Middle East. And despite finishing with a flourish, the Services PMI® reflected the sector’s worst third-quarter performance since 2009.

But the numbers were a welcome development, Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, told a conference call of reporters on Thursday.

“That’s a really good number, especially if it can be sustained in the mid-50s,” he said. “Heading into the fourth quarter, what’s working to our advantage is reduced interest rates. Mortgage- and auto-loan rates were already dropping before the announcement by the (U.S. Federal Reserve). The wild card is how long the ports strike lasts. Inventories are up, which is a good thing from a resiliency standpoint, but (amid a lengthy work stoppage), those inventories will only go so far.”

The Inventories Index increased 5.2 percentage points to 58.1 percent, suggesting that companies not only prepared for holiday peak season, but also a potential ports strike. Miller noted that since the Inventory Sentiment Index decreased to 54 percent, down 0.9 percentage point, companies were intentional in bolstering their stock levels.

“A week-long strike could have a month-long impact in terms of the recovery,” Miller said. “For holiday retail, all of that product is already (in the U.S.). But one of the big risks is in produce and other perishables or consumables that require ocean shipping could have a big impact on the wholesale and retail sides. We’ve already seen how shortages on electrical components and transformers are impacting the construction industry.”

Services companies can only hope the fallout doesn’t blunt the momentum from a September in which the Business Activity (59.9 percent) and New Orders (59.4 percent, the highest reading since February 2023) increased a combined 13 percentage points. Multiple Business Survey Panel respondents cited a new fiscal year at many organizations as an incentive to buy.

Also, the New Export Orders Index (which does not directly factor into the PMI®) was up 5.8 percentage points, to 56.7 percent. Excitement over the demand gauges was tempered, however, by the Employment Index falling into contraction, decreasing 2.1 percentage points to 48.1 percent ahead of Friday’s federal jobs report.

The share of respondents indicating their companies were adding staff was 13 percent in September, down from 14.3 percent the previous month. Those reporting lower head counts actually decreased slightly month over month, a1 14.4 percent compared to 14.5 percent in August.

“There was a reduction of companies increasing employment — they had moved into head counts they were happy with,” Miller said. “Based on the commentary and the numbers, I'm not seeing a broad contraction. It was more a matter of those who were hiring in July and August indicating they were done in September.”

As for interest rate relief, it appears to be a mixed bag for the services sector at this point. Real Estate, Rental & Leasing — the largest services industry, with a 14.9-percent contribution to the sector’s gross domestic product — had a busy September, with the fastest overall growth among the 18 industries, as well as the best performance in business activity, new orders, inventories and prices.

Meanwhile, a survey respondent in Construction wrote, “Housing construction continues to struggle with high interest rates. While the recent half-point cut is encouraging, it may take another 150 basis points to move the needle in sales.”

The Services PMI® data revealed a sector that is building momentum heading into the fourth quarter and holiday peak season — but continuing it requires positive direction from a lot of moving parts.

The Report On Business® roundup:

Barron’s: Strong ISM Services Report Helps Stocks Recover. “ ‘Big boosts in business activity and new orders in September lifted the PMI® to its highest level since February 2023,’ the Institute for Supply Management said. The Dow was down 0.3 percent but climbing off its worst levels of the morning. The S&P 500 and the Nasdaq both made their move out of negative territory to trade up 0.1 percent and 0.4 percent, respectively.”

Bloomberg: U.S. Services Activity Expands at Fastest Pace Since Early 2023. “The (New Orders Index) jumped 6.4 points, the most since the start of 2023. Combined with a four-month high in (the Business Activity Index), the data suggest the #economy was on solid footing at the end of the third quarter.”

Mace News: U.S. Services Sector Expands for Third Straight Month in September on Solid Output, New Orders. “The services sector continues to outperform manufacturing industries, which in Tuesday’s report showed contraction for the sixth straight month in September on continued sluggish demand as firms remain reluctant to invest in capacity amid uncertainty over the pace of the Federal Reserve’s unwinding of its tight monetary policy and the outcome of the presidential election next month.”

MarketWatch: U.S. Economy Speeds Up as ISM Survey Hits 1½-Year High. Businesses Aren’t Gung-Ho, Though. “The services side of the economy has powered the economy for the past few years. And it’s still doing so despite the strain of high interest rates and a surge in inflation. … Executives were cautiously optimistic the economy will improve now that the Federal Reserve is cutting interest rates. Yet they also expressed concern about the new port strike and the pending U.S. election.”

Reuters: U.S. Service Sector Activity Accelerates to 1½-Year High; Employment Declining. “Economists polled by Reuters had forecast the Services PMI® rising to 51.7 percent. The survey joined fairly upbeat August data on consumer spending and a smaller goods trade deficit in suggesting that the economy retained much of its momentum from the second quarter.”

The Wall Street Journal: U.S. Services Sector Leaps Forward, ISM Survey Suggests. “(The PMI® reading was) well beyond the small increase expected by economists polled by The Wall Street Journal. … The (New Orders Index) leapt by more than six points, a sign of healthy demand for services. By contrast, the Employment Index edged down, suggesting some weakness in the sector’s jobs market.”

In case you missed Tuesday’s Report On Business® Roundup on the release of the September Manufacturing PMI®, you can read it here. The Hospital PMI® will be released on Monday. For the most up-to-date content on the three indexes under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.

(Photo credit: Getty Images/Saranyoo Chantawong)

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.