May 05, 2021 | 10:47
U.S. ISM Services PMI — Take A Number and Get In Line
Around the world, economies are awakening as they reopen. Many weren't operating anywhere close to 100% yet in April but at least not all doors were slammed shut. The Euro Area services PMI (50.6) was at its highest since last July, and early readings for the U.K. for April were the highest since April 2014. China slowed but it is still expanding.
Similar story in the United States. The services sector is still expanding at a very rapid pace but the pace eased a little last month. The ISM services PMI dipped one point to 62.7 in April which, like its manufacturing cousin, is still far above the 50 level. Don't focus on the drop.... focus on the fact that the sector is still expanding at its 2nd fastest pace EVER. See the chart below.
Key points to note:
Of the 18 industries in the survey, 17 gave an enthusiastic thumbs up when asked if they were expanding. And, very much like the manufacturing survey, the comments were telling. Here's a sample: ".... consumers have pent-up demand; sales are increasing and the labor pool is tight" (Accommodation & Food Services); ".... delays in container deliveries are now impacting our business" (Agriculture, Forestry, Fishing & Hunting); ".....finding and retaining labor is highly challenging and frustrating" (Construction)"; "...supply has been dwarfed by demand" (Professional, Scientific & Technical Services); and "...logistics and supply cannot keep up" (Wholesale Trade). Here's one that is good news.... from the Health Care sector: "Elective surgeries coming back to pre-COVID-19 rates."
You get the idea.
Bottom Line: Ignore the headline drop. Read the comments. It's not a perfect world, as supply > demand will hurt activity. But things should improve as supply slowly comes back. The question is when?