ISM Services Soars To Record High (Thanks To Supply-Chain Chaos)

Tyler Durden's Photo
by Tyler Durden
Wednesday, Nov 03, 2021 - 02:08 PM

Following the weakness on the Manufacturing side of the economy (PMI ugly down, ISM small drop), the Services surveys were expected to be more mixed (PMI small drop, ISM small gain).

  • Markit's Services survey extended the mid-month gains, rising to 58.7 final print for October from 58.2 flash from 54.9 in September.

  • ISM's Services survey soared to 66.7, smashing expectations of 62.0 and well above 61.9 in September.

These moves are occurring as the dismal US macro data turns up modestly...

Source: Bloomberg

ISM's Services Survey surged to a new record high...

Markit's Services print is back above the Manufacturing print. The divergence is very clear between Services activity (improving) and Manufacturing output (weakening)...

As Markit reports, in response to a further rise in costs, firms raised their selling prices at the fastest rate on record.

Of course, all this survey data should be tempered with the fact that Supplier Delivery times for both Services and Manufacturing remain extremely high (and getting worse for Manufacturing).

This is not a good thing... Prices, Supplier Deliveries, and Backlogs at record highs while inventory sentiment hits record low...

This is embedded in the survey's final print as a positive factor (due to historically meaning demand is strong), however, in this case it is far more related to supply chain disruptions.

The rebound in Services sparked a modest improvement in the Composite US Index, up to 57.6 vs 55.0 in September...

Commenting on the latest survey results, Chris Williamson, Chief Business Economist at IHS Markit, said:

“The final PMI data add to indications that the US economy has picked up speed again in the fourth quarter. After the Delta variant caused growth to slow in the third quarter, the easing of virus case numbers has been followed by a strong revival of economic activity, notably in the service sector, which looks set to be the driving force of the economy as we head towards the end of the year.

While the service sector is seeing a waning impact from the pandemic, it’s a different story in manufacturing, where the supply crisis continues to cause havoc and dampen production growth. Supply delays worsened in October, which has in turn fed through to a further intensification of inflationary pressures.

“Going forward, the big questions will revolve around the extent to which manufacturers can overcome their supply chain bottlenecks, which look set to worsen as we head towards the busy holiday period, and whether the service sector can sustain its current resilience as the rebound from the pandemic starts to fade and incomes are squeezed by higher prices.”

Interestingly, on an aggregate level, the rate of cost inflation slowed to a six-month low in October, but remained historically elevated amid supply shortages. Firms passed costs through to clients, with private sector selling prices rising at the sharpest rate on record.