ISM Services Business Activity

The ISM Services Business Activity Index measures monthly direction in U.S. services business volume. It covers 18 service industries, with responses weighted by industry share of GDP (gross domestic product). Purchasing and supply executives report only on U.S. operations for the current month versus the prior month. It does not measure manufacturing output or regional activity, and it is not a direct GDP growth rate.

Surveys go out in the first part of each month for current versus prior month U.S. operations. Most replies arrive late in the month to give the fullest picture.

It posts on the third business day after 10:00 AM Eastern Time, or the fourth in January unless the NYSE (New York Stock Exchange) closes. ISM posts the full text at www.ismrob.org with analysis, a glance table, charts, industry lists, commodity prices, comments and a manufacturing comparison. Each release also names the next date; raw answers never change and seasonal factors revise yearly.

The Services PMI is the average of four equally weighted parts, including this index.

• Business Activity, 25%: captures monthly change in services business volume, after seasonal adjustment (correction for repeating calendar effects).
• New Orders, 25%: captures change in incoming demand, seasonally adjusted.
• Employment, 25%: captures change in staffing levels, seasonally adjusted.
• Supplier Deliveries, 25%: captures delivery speed without seasonal adjustment; above 50% means slower deliveries and below 50% means faster ones.
• Other Subindexes: cover inventories, prices, order backlogs, new export orders, imports and inventory sentiment; only prices are seasonally adjusted.

The December 2022 release (issued January 6, 2023) showed a component diverging from the headline. The Services PMI fell to 49.6%, down 6.9 points from 56.5%, contracting for the first time since May 2020 and ending a 30-month run. Business Activity still expanded at 54.7%, down 10.0 points from 64.7%, while New Orders stood at 45.2%, Employment at 49.8% and Supplier Deliveries at 48.5%. Prices stood at 67.6%, 11 industries grew, and the lesson is that this index can expand even when the headline contracts.

1. Diffusion index: Add the share reporting higher to 0.5 times the share reporting the same; lower replies shrink the result by reducing those shares. For example, 30% higher with 55% same and 15% lower gives 30 + 0.5 x 55 = 57.5.
2. Seasonal adjustment: Divide the unadjusted index by the monthly seasonal factor from the X-13-ARIMA program and round to 1 decimal place. For example, 57.5 with a factor of 0.98 gives 58.673, published as 58.7. This applies to Business Activity, New Orders and Employment.
3. Composite Services PMI: Average the 4 parts: adjusted Business Activity, New Orders and Employment plus unadjusted Supplier Deliveries, divided by 4. For example, (58.7 + 56.0 + 51.0 + 53.0) / 4 = 54.675, published as 54.7, a services expansion above 50%.