The latest ISM Services PMI report reveals a fifth consecutive month of expansion for the U.S. service sector, though at a noticeably slower pace than previous months. The November reading of 52.1, while still above the 50-point threshold indicating growth, marks a significant 3.9 percentage point decline from October's 56.0.
Service Sector Expansion Loses Momentum
An analysis of recent PMI data shows a fluctuating growth pattern throughout 2023:
- October: 56.0 (+1.1% from September)
- September: 54.9 (+3.4% from August)
- August: 51.5 (+0.1% from July)
- July: 51.4 (+2.6% from June)
- June: 48.8 (contraction)
- May: 53.8 (expansion)
- April: 49.4 (first contraction since December 2022)
The November figure falls slightly below the 12-month average of 52.2, reinforcing concerns about decelerating growth in the service economy.
Sector Performance: Winners and Losers
ISM data reveals divergent performance across service industries in November:
Expanding sectors (14 total): Accommodation & Food Services; Arts, Entertainment & Recreation; Healthcare & Social Assistance; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Public Administration; Finance & Insurance; Management of Companies & Support Services; Retail Trade; Transportation & Warehousing; Information; Professional, Scientific & Technical Services; Construction; Utilities.
Contracting sectors: Mining; Real Estate, Rental & Leasing; Educational Services.
Key Subindexes Signal Broad Slowdown
Most component indexes showed deterioration from October to November:
- Business Activity/Production: 53.7 (-3.5 points) - fifth month of slowing growth
- New Orders: 53.7 (-3.7 points) - fifth month of slowing growth
- Employment: 51.5 (-1.5 points) - second month of slowing growth
- Backlog of Orders: 47.1 (-0.6 points) - fourth month of contraction
- Supplier Deliveries: 49.5 (-6.9 points) - indicating faster deliveries
- Prices: 58.2 (+0.1 points) - 90th consecutive month of increases
- Inventories: 45.9 (-11.3 points) - contraction after three months of growth
Industry Experts Identify Emerging Risks
Survey respondents highlighted several concerns affecting business decisions:
A professional services executive noted that "election outcomes and potential tariff changes will impact inventories and cause price increases in hospital supply chains," while a transportation sector representative reported pausing capital projects pending clarity on federal funding allocations.
Steve Miller, Chair of the ISM Services Business Survey Committee, characterized the current environment as "slow to moderate growth," attributing some recent volatility to external factors like port strikes and hurricane activity. He specifically noted how healthcare providers prepared for potential supply disruptions by building inventory ahead of possible East Coast port strikes in January.
Miller anticipates December's PMI will range between 50-51, suggesting continued but modest expansion as the service sector normalizes from earlier disruptions.
Strategic Implications for Businesses
The report suggests several strategic considerations for service sector participants:
- Monitor macroeconomic indicators and policy developments that may affect operating conditions
- Assess industry-specific growth trajectories when making investment decisions
- Enhance risk management capabilities to address potential supply chain disruptions
- Prioritize innovation to maintain competitiveness in slowing markets
- Focus on customer experience differentiation as growth becomes harder to achieve
While the service sector continues to expand, the November data suggests businesses should prepare for a more challenging operating environment marked by slowing demand, persistent price pressures, and ongoing supply chain uncertainties.