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Report On Business® Roundup: October Services PMI®

November 05, 2024
By Dan Zeiger

In what was likely the last major economic data to drop before voters determined the next U.S. president and the balance of power in Washington, the Services ISM® Report On Business® delivered somewhat of an October surprise.

The Services PMI®, fresh off its lowest average third-quarter reading since 2009, blew by analysts’ projections by registering 56 percent, its highest figure since July 2022 (56.4 percent). That boost was power by lower rates of growth (though still strong) in the Business Activity and New Orders indexes, and a 4.9-percentage point gain in the Employment Index, which returned to expansion territory.

“Business is booming, nothing slowing down,” wrote a survey respondent in Utilities.

While one month does not make a trend, that all four indexes that directly impact the PMI® — Business Activity (57.2 percent), New Orders (57.4 percent), Employment (53 percent) and Supplier Deliveries (56.4 percent) — exceeded their 2024 averages in October appears to be a good sign for the sector as it heads into holiday peak season.

“It’s positive news for this time of year,” Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, told a conference call of reporters on Tuesday. He noted that Retail Trade reported the fastest growth rate among the 18 services industries, a reversal from five consecutive months in contraction.

The Supplier Deliveries Index reading likely gave an artificial boost to the composite index. As the only ISM® Report On Business® index that is inversed, a Supplier Deliveries reading of above 50 percent indicates longer lead times, which is typical as the economy improves and customer demand increases.

However, the October reading, a 4.3-percentage point increase compared to September, was largely the product of supply disruptions from the back-to-back hurricanes hitting the Southeast. The Health Care & Social Assistance sector was particularly impacted by temporary shutdowns of IV solutions plants in North Carolina and Florida.

The rest of the data indicated robust business activity, so much so that perhaps the weightiest matter on survey respondents’ minds was what Americans went to the polls to resolve on Tuesday. “The uncertainty over the election was a theme among the comments,” Miller said. “Panelists mentioned the hurricanes and the brief longshoremen’s strike as well, but a lot of the talk was about business picking up.”

The Employment Index reading raised eyebrows, particularly after a federal jobs report on Friday that revealed just 12,000 positions added in October, though the hurricanes and ports labor turbulence held down that number. It’s the third time in four months the Employment Index has indicated growth, and Miller noted that the mild expansion indicated in July and August was congruent with recent downward jobs-data revisions by the U.S. Bureau of Labor Statistics.

The Inventories Index remained elevated at 57.2 percent, but that was likely not due to peak-season preparations. The Inventory Sentiment Index decreasing a percentage point to 53 percent suggests companies had storms- and strikes-related safety stock. “Monitoring inventories much closer than in the past. (Restocking) for the fall and winter seasons at a lower level than normal, but those decisions are easy to understand,” wrote a respondent in Agriculture, Forestry, Fishing & Hunting.

With the U.S. Federal Reserve slated to again discuss interest rates at its meeting this week, the Prices Index registered 58.1 percent, down 1.3 percentage points compared to September. A seamless election and more interest-rate clarity could give the services sector even more juice heading into peak season.

“The positive responses across all industries helped lead to the (PMI®) shifting up,” Miller said. “With 14 of 18 industries reporting growth, that’s a good sign of (overall) strength.”

The Report On Business® roundup:

Bloomberg: U.S. Services Activity Grows at Fastest Pace Since Mid-2022. “The report also paints a more resilient labor market picture than offered by last week’s monthly jobs report. U.S. employers added just 12,000 jobs in October, a stepdown in hiring that was distorted by severe hurricanes and a major strike at Boeing. American voters, who head to the ballot box today, have repeatedly listed the economy as a top concern in this year’s presidential election.”

Mace News: Services Sector Expands for Fourth Straight Month in October on More Jobs but Surprise Index Rise Also Caused by Slower Deliveries in Wake of Hurricanes. “The services sector continues to outperform manufacturing industries which in Friday’s report showed contraction for the seventh straight month in October as firms remain reluctant to invest in new capacity on concerns that federal fiscal policy could be inflationary whichever major party wins the November 5 election. Miller noted that ‘there wasn’t a comment’ by services firms on any concerns about a possible inflationary policy.”

MarketWatch: Main Engine of U.S. Economy Posts Fastest Growth in More Than Two Years, ISM Finds. “The services side of the economy has generated strong growth in the past few years and kept the country of out recession, offsetting a prolonged slump in the smaller manufacturing industry. The latest evidence suggests the service economy is in very good shape, boding well for a four-year-old expansion.”

Reuters: U.S. Service Sector Activity Accelerates to More Than Two-Year High. “Polls show the close-fought (presidential) race may hinge on voter views of the economy, where high prices remain a continued pain point for families even as inflation itself has returned to near-normal levels, unemployment has remained low, and the Federal Reserve has begun reducing interest rates to keep it that way.”

The Wall Street Journal: U.S. Services Sector Accelerates on Employment Boost. “The survey showed services employment expanding last month, after it contracted in September, though demand — as measured by new orders — slowed, despite still being in (expansion) territory, ISM said. Meanwhile, 14 industries reported growth in October, up two from September.”

In case you missed Friday’s Report On Business® Roundup on the release of the October 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/Alvarez)

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.