Economic activity in services sector sets another record, but employment pace slows

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November 03, 2021

The US services sector saw economic activity increase in October, with the rate of expansion setting a record for the fourth time in 2021, the Institute for Supply Management reported today. Employment activity also increased, albeit at a slower rate than the prior month.

The report’s “Services PMI” rose to an all-time high reading of 66.7% in October from September’s reading of 61.9%. Readings above 50% indicate growth, with higher numbers indicating quicker growth; September’s reading indicates the 17th straight month of growth for the services sector and exceeds the former all-time high of 64.1% set in July; previous records were set in May (64%) and March (63.7%).

The record reading for October is attributed to two of the four equally weighted subindexes that directly factor into the composite index and set all-time highs: The Business Activity Index reached 69.8%, an increase of 7.5 percentage points compared to the reading of 62.3% in September, and the New Orders Index hit 69.7%, up 6.2 percentage points from 63.5%.

“In October, strong growth continued for the services sector, which has expanded for all but two of the last 141 months,” said Anthony Nieves, chair of the Institute for Supply Management Services Business Survey Committee. “However, ongoing challenges — including supply chain disruptions and shortages of labor and materials — are constraining capacity and impacting overall business conditions.”

Reuters reported its poll of economists had forecast the index edging up to 62.0%. The summer wave of coronavirus infections driven by the Delta variant has subsided, encouraging more consumption of services like air travel and dining out.

The ISM’s report also found that employment activity in the services sector grew in October for the fourth consecutive month after contracting in June. However, the growth pace slowed.

The services employment index fell to a reading of 51.6% in October from 52.0 in September. The employment index is one of four diffusion indexes that comprise the composite Services PMI. The other diffusion indexes are new orders, production and inventories.

The report is based on a survey of purchasing and supply executives nationwide. Comments from respondents include: 

  • “Staffing and turnover remain significant challenges.”
  • “Continued difficulty filling positions, especially front-line.”
  • “Drivers are in short supply; rate of turnover has increased.”

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