Another Record: ISM Services Comes In Scorching

US services sector activity picked up dramatically last month, ISM said Monday.

The headline print on the services gauge came in at 63.7. That’s a record in data back to 1997 and was easily better than the 59 consensus expected.

The range, from more than four-dozen economists surveyed, was 57 to 62.

This came on the heels of the hottest ISM manufacturing print since 1983 and added to evidence that the world’s largest economy is gathering momentum amid fresh stimulus and hopes for a grand summer reopening.

March’s blockbuster jobs report showed further gains for leisure and hospitality. With vaccine distribution proceeding rapidly, herd immunity (or something like it, anyway) seems likely within six months.

“For further historical context, the Services PMI debuted as the Non-Manufacturing NMI in 2008, although subindex data was collected for years in advance,” Anthony Nieves, Chair of the ISM Services Business Survey Committee said Monday. “In August 1997, the four subindexes that make up the Services PMI would have calculated a composite-index reading of 62%.”

The breakdown showed outsized gains almost across the board (figure below). All of the 18 services industries reported growth in March.

Prices paid hit the highest since July of 2008, as supply chain constraints continued to collide with rising demand. “Logistics delays and uncertainty are creating significant problems with suppliers and inventories,” someone in accommodation and food service said. “Also, [there are] cost concerns regarding inflated pricing due to logistics and shortages.”

At 69.4, the business activity gauge hit a record, and was up almost 14 points from February. “We believe there is some pent-up demand starting to come back as back-orders and production ramp up after COVID-19 delays; we also think there is purchase optimism due to the recent stimulus package,” one respondent chimed in.

The employment gauge has been in expansion territory for three straight months, which generally matches up with leisure and hospitality hiring since December’s unfortunate purge (figure below).

It’s a familiar story across virtually all industries. A respondent from healthcare said “vaccination rates are rising, and coronavirus infections are falling… leading to optimistic outlooks and forecasts for increased business activity.” “Residential new home demand continues to outpace supply,” someone in construction told ISM. “Building material delays, discontinuations and shortages are beginning to develop.”

Meanwhile, the final read on IHS Markit’s services sector gauge ticked higher from the flash print. At 60.4, it’s the highest since the summer of 2014.

“The recent surge in service sector growth shows no sign of abating,” Chris Williamson, Chief Business Economist at IHS Markit declared. “While consumer demand is rising especially strongly for goods, the surveys are now also showing rising activity in the consumer services sector, linked to the vaccine rollout, looser virus containment measures and the fresh injection of stimulus in March,” he added, noting that “the biggest concern is inflation.”