Economic activity in the services sector expanded in March for the 15th consecutive month as the Services PMI® registered 51.4 percent, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 45 of the last 46 months, with the lone contraction in December 2022.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “In March, the Services PMI® registered 51.4 percent, 1.2 percentage points lower than February’s reading of 52.6 percent. The composite index indicated growth in March for the 15th consecutive month after a reading of 49 percent in December 2022, which was the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 57.4 percent in March, which is 0.2 percentage point higher than the 57.2 percent recorded in February. The New Orders Index expanded in March for the 15th consecutive month after contracting in December 2022 for the first time since May 2020; the figure of 54.4 percent is 1.7 percentage points lower than the February reading of 56.1 percent. The Employment Index contracted for the third time in four months with a reading of 48.5 percent, a 0.5-percentage point increase compared to the 48 percent recorded in February.

“The Supplier Deliveries Index registered 45.4 percent, 3.5 percentage points lower than the 48.9 percent recorded in February. The index continued in contraction for the second straight month — indicating that supplier delivery performance was faster — after one month in expansion (or ‘slower’) territory in January. In the last 12 months, the average reading of 48.7 percent (with a low of 45.4 percent this month) reflects the fastest supplier delivery performance since December 2022, when the index registered 48.5 percent. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Prices Index registered 53.4 percent in March, a 5.2-percentage point decrease from February’s reading of 58.6 percent. The Inventories Index contracted in March for the fourth consecutive month, registering 45.6 percent, a decrease of 1.5 percentage points from February’s figure of 47.1 percent. The Inventory Sentiment Index (55.7 percent, down 1 percentage point from February’s reading of 56.7 percent) expanded for the 11th consecutive month. The Backlog of Orders Index dropped into contraction in March after two consecutive months of expansion, registering 44.8 percent, a 5.5-percentage point decrease compared to the February reading of 50.3 percent.

“Twelve industries reported growth in March. The Services PMI®, by being above 50 percent for the 15th consecutive month (after a single month of contraction in December 2022 and a prior 30-month period of expansion), continues to indicate sustained growth — but at a slower rate in March — for the sector.”

Nieves continues, “The decrease in the rate of growth in March and the decline in the composite index is a result of slower new orders growth, faster supplier deliveries and a contraction in employment. The report continued to reflect growth month over month. Respondents indicated continuing improvement in logistics and the supply chain. Employment challenges remain a combination of difficulties in backfilling positions and/or controlling labor expenses. The Prices Index reflected its lowest reading since March 2020, when the index registered 50.4 percent; however, respondents indicated that even with some prices stabilizing, inflation is still a concern.”

INDUSTRY PERFORMANCE

The 12 services industries reporting growth in March — listed in order — are: Accommodation & Food Services; Professional, Scientific & Technical Services; Agriculture, Forestry, Fishing & Hunting; Educational Services; Construction; Management of Companies & Support Services; Utilities; Retail Trade; Wholesale Trade; Other Services; Finance & Insurance; and Health Care & Social Assistance. The four industries reporting a decrease in the month of March are: Mining; Transportation & Warehousing; Real Estate, Rental & Leasing; and Information.

WHAT RESPONDENTS ARE SAYING

- “The Red Sea turmoil is still not a notable challenge on supply for our sector, but we’re watching carefully for disruption risk. Also, the unrest in Haiti carries potential risk for the garment industry.” [Accommodation & Food Services]
- “Our market is shaping up to be the first normal year since the start of COVID-19. Volumes were down in 2022 and 2023. A price correction was made last year, setting up sales to move back to historical volumes.” [Agriculture, Forestry, Fishing & Hunting]
- “National business conditions remain strong in the industrial construction market. Labor is still tight across the country for skilled trades positions.” [Construction]
- “We are experiencing a budget shortfall, like many of our peers in higher education, so our spending will be down at the end of this fiscal year (June 30). Hiring is at a much slower pace as well, and we are still experiencing high employee turnover. Public opinion on the value of higher education compared to the cost is having an impact on our enrollment.” [Educational Services]
- “With the housing market continuing to stabilize, more mortgage inquiries are being made since my company opened up its mortgage loan program to loans other than Veterans Affairs loans.” [Finance & Insurance]
- “Continued inflationary pressure across multiple clinical device categories as contracts expire or are renewed.” [Health Care & Social Assistance]
- “Activity level holding steady for oil and gas.” [Mining]
- “Our company and industry continue to pull back to prepare for economic volatility in the second half of the year. Cost reduction initiatives remain a top-five company objective, even in a high-growth environment.” [Professional, Scientific & Technical Services]
- “Product supply chain is calm, and pricing steady. We are in slack time between seasons and use this time to prepare for spring/summer business. Challenges with employee retention in a few areas; however, turnover is only a few percent beyond target levels.” [Retail Trade]
- “Lead times and supply are improving, but several strategic items remain difficult to procure.” [Utilities]