The Institute for Supply Management (ISM) Services report, released on the third business day of each month for the previous month, surveys purchasing and supply executives around the country in over 20 service industries like legal services, entertainment, real estate, professional, and finance & insurance. Levels above 50 indicate expansion while below 50 imply contraction. The index includes the following components: Business Activity, New Orders, Employment, Supplier Deliveries, Inventories, Prices Paid, Backlog of Orders, New Export Orders, Imports, and Inventory Sentiment.
The latest ISM Services Index for August came in at 54.5%, better than expected and a 1.8 percentage point increase from the July reading of 52.7. Almost all components of the index improved, indicating growth at a faster pace. The lone component that contracted is Backlog of Orders, which was down 10.3 percentage points in August, its largest monthly contraction since the start of the series in July 1997 (see graph below). Outside of the pandemic, the Backlog of Orders Index has never been at this level without a recession. It’s also worth noting that inventories rose sharply alongside this significant decline in order backlog. This dynamic implies that demand could be softening for the services sector. According to the report, the overall services economy continued to grow for the eighth consecutive month.
Here are a few interesting excerpts from survey respondents:
