Boockvar on U.S. Services Sector
From Peter Boockvar
US services sector and its contribution to growth
The September ISM services index slipped by .5 pt m/o/m to 54.9, about as expected. Business Activity jumped in July to 59.1 and again in August to 61.7 but fell back to 56.5 in September, though still well above 50.
New orders stayed high but dipped by 1.1 pts to 59.8. Backlogs were up 1 pt to 56.6. Inventories remained elevated at 57.8.
With employment, it got back to 50 at 50.1 after two months below.
On supply chains, Supplier Deliveries rose 1.9 pts to 53.2 but a touch below the 6 month average of 54. On this, the ISM said, “Tariffs and fuel cost impacts were the most cited issues impacting respondents’ supply chains; in fact, fuel costs were mentioned twice as often as any other single issue impacting performance. Supply chain constraints were also a top concern of respondents and were impacting both lead times and costs.”
Prices paid increased further to 74 from 72.6 and that is the most since July 2022. Of 18 industries asked, 17 paid higher prices with one seeing no change. Not surprisingly, “Petroleum-related products, diesel and gasoline were again reported as up in price in September, as was memory products for the ninth month in a row. The number of commodities in short supply increased from six to seven, with switchgear and computers and related products being notable additions.”
Industry breadth got a bit better with 13 seeing growth vs 12 in the month before but vs 13 in July, 14 in June, and 17 in May. Those seeing a contraction in their business totaled 4 vs 5 in the month before.
Bottom line, the service side of the US economy continues to be the main source of economic growth and the construction of data centers flows through here, though construction of other things does too, like new homes and offices, and that is an offset. The areas of the economy elsewhere that saw growth in September, to name most, were those touching retail and wholesale trade, utilities, healthcare of course, education, information, transportation/warehousing, leisure/hospitality and professional/Scientific/Technical Services.
No response from Treasuries, though yields are at the highs of the day on the long end.
The respondent comments were littered with comments about the impact of higher costs:
“The high cost of diesel fuel has increased the cost of freight dramatically. The high cost is hard on farmers due to the high use of diesel fuel at harvest. The high cost of crude oil has driven nitrogen (for agronomic use) prices to near record highs.” [Agriculture, Forestry, Fishing & Hunting]
“Interest rates continue to drive buyers out of the market. Half of buyers walking through the door cannot qualify to purchase.” [Construction]
“Increased competition for deposits and higher funding costs are placing pressure on profitability and moderating growth expectations. Although projections have been revised downward, the bank continues to expect modest growth in both loans and deposits.” [Finance & Insurance]
“Had vendor communications about more fuel charges and possible tariff reinstatement.” [Health Care & Social Assistance]
“Demand across commercial client segments remains steady through September, though client decision cycles on discretionary capital projects remain cautious. Wage pressures and software licensing renewals continue to push operational expenses slightly higher, but freight and consumable material lead times have normalized.” [Information]
“Oil and gas prices are still high, which encourages more production.” [Mining]
“The cost of fuel continues to impact our cost of providing services.” [Other Services]
“Shipping containers from overseas are double the cost, causing price increases.” [Retail Trade]
“Business activity remains strong, but supply chain conditions continue to be challenging. Utilities and materials are experiencing slower availability, with steel particularly difficult to source domestically. We are increasingly having to place orders internationally to secure required materials. Strong business demand is putting additional pressure on supply, contributing to longer lead times, material availability issues and delays in project starts.” [Utilities]
“Demand remains very strong. Manufacturers have very little breathing room to keep up with demand, and in some cases, typical lead times have slipped. They are not as aggressive on all opportunities and eager to cut prices to secure business. Weekly price increases are the norm these days on commodities products (copper, aluminum and polyvinyl chloride). We are constantly reaching out to any and all suppliers we conduct business with to secure product to meet customer demand.” [Wholesale Trade]
ISM Services
Prices Paid
Prices Paid
Positions: None
