Economic activity in the services sector contracted in December after 30 consecutive months of growth, with the Services PMI registering 49.6%, according to the latest Services ISM Report on Business from the Institute for Supply Management.
“In December, the Services PMI registered 49.6 percent%, 6.9 percentage points lower than November’s reading of 56.5%,” Anthony Nieves, CPSM, CPM, APP, CFPM, chair of the Institute for Supply Management’s services business survey committee, said. “The composite index contracted for the first time since May 2020, when it registered 45.2%. The Business Activity Index registered 54.7%, a substantial — 10 percentage point — decrease compared to the reading of 64.7% in November. The New Orders Index contracted in December for the first time since May 2020; the figure of 45.2% is 10.8 percentage points lower than the November reading of 56%.
“The Supplier Deliveries contracted in December, indicating faster performance. The index registered 48.5%, 5.3 percentage points lower than the 53.8% reported in November. (Supplier Deliveries is the only ISM Report on Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.)
“The Prices Index was down 2.4 percentage points in December to 67.6%. The Inventories Index contracted for the seventh consecutive month; the reading of 45.1% is down 2.8 percentage points from November’s figure of 47.9%. The Inventory Sentiment Index (55.9%, up 11.7 percentage points from November’s reading of 44.2%) returned to expansion after four straight months in contraction.
“According to the Services PMI, 11 industries reported growth. The composite index ended a 30-month period of growth, contracting for the first time since two straight months of sub-50% readings in April and May 2020. Of the four subindexes that directly factor into the Services PMI, three — new orders, employment and supplier deliveries — contracted in December. Prior to the current contraction in the services sector, the PMI indicated growth for all but two of the previous 154 months, including a faster rate of expansion in November.”
“Business survey committee respondents indicated that supplier deliveries were faster in December, based on increased capacity and improved logistics,” Nieves said. “Employment contracted due to a combination of decreased hiring due to economic uncertainty and an inability to backfill open positions. The holiday season contributed to the continued growth in business activity, albeit at a slower rate.”
