U.S. ISM Services PMI Slipped in March but Remained in Expansion Territory

The U.S. ISM Services PMI fell to 51.4 in March, the lowest reading since December, from 52.6 during February, according to the Institute for Supply Management. The figure indicated expansion for the 15th consecutive month but stood below its recent high of 67.1 in November 2021. A small increase to 53.0 for March had been expected by the Action Economics Forecast Survey. A reading above 50 indicates expansion in the services sector.

Haver Analytics constructs a composite index combining the services index released today and the manufacturing index, which was released on Monday. This index fell to 51.3 in March from 52.0 in February and remained well below the record 66.3 recorded in November 2021. The series dates back to July 1997.

The business activity index increased to 57.4 last month from 57.2 in February, continuing the uptrend it began last November. Twenty-two percent of respondents (NSA) reported increased activity while 6.9% reported lower. The new orders index declined to 54.4 in March from 56.1 in February. Twenty-one percent (NSA) of respondents reported higher new orders while 10.6% reported lower. The employment index rose to 48.5 in March from 48.0 in February. Nineteen percent of respondents (NSA) reported an increase in employment (up from 13.5% in February) while 19.8% reported a decline.

The supplier delivery index declined further in March to 45.4 from 48.9 in February, indicating faster delivery times. This was the lowest reading in the history of the series dating back to July 1997. Thirteen percent of respondents reported faster deliveries while 3.8% reported slower. In the current environment, it may be difficult to interpret what the supplier deliveries index is telling us. On the one hand, the faster times could be reflecting the ongoing mending of broken supply chains. On the other hand, faster delivery times have historically pointed to an overall slowdown in demand that enables orders to be filled more quickly.

The prices paid index declined to 55.1 in March, its second consecutive monthly fall, from 58.8 in February. Twenty-three percent of respondents reported paying higher prices while 12.3% reported paying lower prices, the highest reading since May 2020.

In other series, the export orders index edged up to 52.7 (NSA) in March after having fallen sharply to 51.6 in February. The order backlog series slumped to 44.8 (NSA) in March, the lowest reading since last August, from 50.3 in February.

The ISM Services PMI is a composite index that consists of four equally weighted diffusion indexes (25% each): Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; below 50 suggests contraction. The Supplier Deliveries index is inverted with a reading above 50 indicating slower deliveries. The ISM figures are available in Haver’s USECON database with additional detail in the SURVEYS database. The expectations figure from Action Economics is in the AS1REPNA database.