U.S. ISM Services Index (December 2021)

Services continue to grow at a slower pace in December

• The ISM services index eased to 62.0 in December from the record high of 69.1 reported in November. This was a markedly lower reading than 66.9 expected by the consensus estimate. 
• Demand sub-indexes remained robust with readings staying above 60. The business activity sub-index declined to 67.6 from the all-time high of 74.6, while new orders eased to 61.5 from 69.7 reported in November. 
• The good news is that businesses are continuing to see some relief in the supply chains. Delivery times improved, with the supplier deliveries sub-index dropping by 11.8 ppts to 63.9 – the lowest reading in the past eight months. The backlog of orders sub-index also eased to 62.3 from 65.9 in November.
• Inventories were down by 1.5 points to 46.7, while inventory sentiment increased marginally to 38.3 (+1.9 ppts), up from its lowest record.
• The new export orders sub-index moved higher to 61.5 (+3.6 ppts), while imports increased to 55.5 (+5.0 ppts).
• The employment sub-component was down to 54.9 from 56.5 in November.
• The prices paid component moved higher to 82.5 from 82.3 in November. 
• Sixteen industries expanded in December. The only industry reporting contraction in December is Mining.     

Key Implications

• Some moderation in growth was expected. After all, the previous report was a record high, which was also the fourth record-setting reading within the span one year – a record in itself. What we like about December's report is that delivery times are improving and backlog orders are easing, which suggest that the industry remains in a healthy position despite some easing on the demand side.
• We expect further moderation in the index next month as the Omicron variant weighs on the services activity. Even if business and school closures remain limited, consumer caution might slow demand for the services sector, although potential Omicron-induced reversal in the supply-side sub-indexes could support strength in the headline reading. Still, this setback is unlikely to erase the progress the sector has seen in the last year and we expect it to stay the course while keeping our H1 2022 forecast unchanged.     

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