Sales, new orders, order backlogs and exports increased for distributors and wholesalers in December, according to the monthly Institute for Supply Management Services survey of supply and purchasing executives. But, like most other companies covered by the survey, they paid more for the goods they purchased.
And in a potentially cautionary note, the wholesale industry ranked highest among the nine categories of companies reporting inventories being too high for their business needs. The ISM Services report covers 18 categories of non-manufacturing companies.
The overall services purchasing manager index for all 18 categories rose to 54.4%, 1.8 percentage points higher than the November figure of 52.6%, marking the third consecutive month of expansion.
Nonetheless, one wholesale industry surveyed by ISM commented, “Year-over-year growth has been coming down for the last three months. Most likely, the government shutdown was a contributor.”
Earlier in the week, the ISM released its manufacturing industry report, which showed a decline in factory activity to a level of 47.9% in December, down from 48.2% in November and the tenth consecutive month of a reading below 50%, indicating contraction. However, as manufacturing only represents about 10% of the U.S. economy, historically manufacturing index readings of 42.3% and higher have correlated with a growing economy.
For the services PMI, a reading above 48.6% generally indicates growth in the U.S. economy, and the December reading represented the 67th consecutive month above that mark. The December reading of 54.4% “corresponds to a 1.9-percentage point increase in real gross domestic product (GDP) on an annualized basis,” said Steve Miller, chair of the ISM’s services business survey committee.
Wholesalers say inventory declined but remains too high
According to the December ISM services report, wholesale trade registered increases in business activity, new orders, imports, new export orders and order backlogs.
Employment remained flat for wholesalers and distributors, according to the report. For service industries overall, the employment index increased for the first time since May, hitting 52%, up 3.1 percentage points from November. “We are now able to hire more qualified people, as the labor market appears to be stabilizing,” one surveyed executive commented.
The inventories index moved up to 54.2% from 53.4% in November, with nine industries reporting growth. Wholesale trade was one of only two industries to report a decline in inventories.
Nonetheless, the wholesale trade categories had the highest percentage of executives saying their inventories were too high given their business requirements. (ISM does not report percentages for each of the 18 industries covered, but does rank them from high to low in each category.)
It was the 32nd consecutive month that the inventory sentiment index for all 18 services industries came in as “too high,” although December’s 54.1% reading was lower than the 54.8% in November.
Prices continued to rise for service industries, with some panelists commenting on the ongoing impact of tariffs. The overall reading for November was 64.3%, down from 65.4% in November.
Among the commodities increasing in price, according to ISM, were: aluminum-based chemicals, beef, computer components, construction services, copper, copper products, lab supplies, labor, construction labor and software licenses. Prices fell for cheese, diesel fuel, gasoline and oil.
ISM also reported short supplies of computer components, construction services and electrical components.
