Report Highlights:
- Expansion Trends: The Services PMI recorded a solid 53.6. While slightly down from the previous month’s 54, it marks a period where 14 of 18 services industries are reporting growth—the highest expansion level seen in two years.
- Inflationary Pressures: A major “danger flag” identified is the Prices Paid Index, which remains high at 70.7. This historically elevated level typically correlates with inflation rates exceeding 5%.
- Energy and Geopolitics: The team discusses the impact of the Iran war and low oil inventories on petroleum costs, noting that “opportunistic pricing” in gasoline and diesel has been felt almost immediately.
- Sector Performance: While Mining is seeing a high rate of expansion, sectors such as Real Estate, Retail Trade, and Agriculture are currently in contraction territory.
- The Housing Market: Miller and the hosts dive into the “perfect storm” affecting housing, where high mortgage rates and rising costs for labor and materials (lumber, steel, and copper) are straining the industry.
The Latest ISM Reports:
Services PMI
Manufacturing PMI
TRANSCRIPT
Lewis A Weiss (00:04.45)
Good day everybody. This is Lew Weiss again from Manufacturing Talk Radio. We have today our guest from the Institute for Supply Management, Steve Miller, who is the chair of the services report. Steve, welcome aboard.
Steve Miller (00:24.31)
Good morning. Thanks for having me.
Lewis A Weiss (00:25.964)
Yeah, listen, before we get into the report, I just want to mention a couple things for our listeners.
If you won, thank you for showing up and listening to the show. If you like the show, do us a great favor and that’s hit the subscribe, the share, the like, and if there’s any other buttons, click those also. So that being said, let’s take it away. Steve, the report.
Steve Miller (00:58.55)
Sure. Yeah, we had a solid report today. We had a 53.6 reading. I’m going to reference some numbers here over to my right, which was slightly down from last month. We had a 54 last month and a 53.6. The ISM Services PMI is a composite number from four sub-indexes, one being business activity, second being new orders, third being employment, and fourth…being supplier deliveries. Supplier deliveries when it’s over 50 means that we’re having slower deliveries. Under 50 is faster deliveries, which you might see if business activity is really high, suppliers are more strained, takes a little longer to deliver, get on time orders, and when there’s plenty of capacity and not much activity, they can deliver as fast as you want. All those numbers this month were directionally as expected.
Lewis A Weiss (01:35.821)
Right.
Steve Miller (01:57.718)
employment number was up a little bit, but it’s still in contraction territory at 48, so slightly below the 50, is same as last month. The new orders index dropped a bit or dropped 7.1%, which is more than we expected. But when you look back at the numbers the last couple of months, not unexpected given the commentary that over the last couple of months, people were working to get ahead of potential oil shocks.
So all looks pretty normal. The one kind of danger flag out there is the 70.7 in the prices paid index, which is the same as last month. So good news, we’re not seeing additional costs flow through the supply chain any faster than we were last month. But 70.7 from a historical standpoint is very high and we’ve only seen that on a consistent basis.
when we’ve seen inflation over 5%.
Lewis A Weiss (02:58.354)
That number could conceivably go higher as a result of the Iran war, being that I don’t think that all the figures are included in numbers, whether it’s yours or any other org or association. I don’t think it’s embedded in the numbers.
Steve Miller (03:22.218)
Yeah, Lew, what I think supports your comment is that in our report, we get commentary from the supply managers and they said in their commentary that in some cases we’re seeing costs flow through. In other cases, we’re expecting, but haven’t yet seen higher prices flow through and petroleum related products. So I think one of the things that worked well is that the cost per barrel didn’t get much above a hundred.
Lewis A Weiss (03:30.028)
Right.
Steve Miller (03:50.038)
this month like it didn’t last month. So if it holds out, you know, we can expect, I think, maybe a modest uptick to 70.7, but not significant. And then if we see the ability to kind of drive that down, of course, we’d expect to see that prices paid number come down over time. Although Goldman Sachs just reported that we’re at the lowest oil inventory levels that we’ve seen, which means that oil that’s on the ocean is going to be caught in the strait is going to cost us more. And then that’ll be inventory and then that’ll flow through in higher cost as well.
Lewis A Weiss (04:29.172)
In my humble opinion, I don’t think the numbers are as high as they could be had it not been for the fact that the marketplace raised prices on oil almost immediately upon the war, which has no effect on the reality of costs. It’s just…
Lewis A Weiss (04:50.808)
Whatever it is, let’s raise the price. Have a party, champagne. Yeah, it’s, what do they call that? Opportunistic pricing.
Steve Miller (04:53.94)
had a good excuse.
Steve Miller (05:00.598)
Yes, indeed.
Lewis A Weiss (05:02.572)
Right, Yeah.
Steve Miller (05:03.892)
I said, yes, indeed. We saw that come through almost immediately, especially in gasoline and in diesel prices.
Lewis A Weiss (05:14.656)
I passed a gas station here in New Jersey three times in one day as about a week ago. Each time the price went up two cents, four cents, six cents. His prices didn’t go up three times in that day. So it is.
Steve Miller (05:31.238)
No, and you know, and it’s the old, old joke. How much is that worth? Whatever you’ll pay for it, that’s what it’s worth.
Lewis A Weiss (05:38.806)
Right, exactly. So now I started buying Russian gas, because that seems to be about 10, 15 cents cheaper. But they’re probably going to catch on to that too and raise their prices accordingly. Let’s talk about some of the respondent comments.
from this report. Again, they do talk about the war that’s been causing banking customers are having a bit of a problem in regards to buying equipment and so on. What’s your take on some of this?
Steve Miller (06:15.04)
So mine overall is when you have investments that need to be made and paid off over time, and there’s uncertainty around just how strong the economy is going to be, people hold back a bit before they make those kinds of commitments. We saw that early on in the tariff kerfuffle, I guess we’ll call it, a year ago, a little over a year ago, when Liberation Day was announced, and there was a lot of uncertainty as to what kind of impact.
those tariff increases would do within the economy at large. 90 % of the economy is the services industries. And looking over the last year, we’ve seen a modest increase in the PMI over time. So not much, but certainly for the construction folks, people that are paying for aluminum and steel and all that type of thing, we’re seeing those higher costs impact our operations.
but not significantly impacting our business activity. So I think it’s kind of a natural effect of uncertainty. People are gonna hold off on those capital investments where they believe they have some time.
Lewis A Weiss (07:25.134)
Now it’s interesting, I was the president of All Metals and Forge Group back prior to two years ago. And I was sort of right in the middle of the beginning and the middle sector of the tariffs. And it had a major effect on our company and it certainly had a major impact on our customers. And part of the problem, I think, is that manufacturing companies really aren’t walking much
Steve Miller (07:32.064)
you
Lewis A Weiss (07:55.04)
They weren’t then, and now the tariffs are higher, and they’re still not balking at it. They’re not marching on Washington, or they’re not storming the Capitol, or surrounding the White House to stop all this stuff. So I don’t know how and where and when this is going to stop, obviously. Nobody does. Only the administration knows.
something, we’re not sure about what that is, but it’s becoming the new norm. It’s almost acceptance of the terrible functions that are occurring in our space today.
Steve Miller (08:36.342)
Yeah, and there’s always a bunch of different levers, right? So you see some of the ability to do early expensing of capital investments that for some companies works in advantage. We’re not pumping another trillion or $2 trillion of government spending into the economy to kind of fuel that inflation and make prices flow through. I think when you look at the business you’re just referring to, it’s a fraction of 10 % of the economy. And as long as you see consumers paying 3 % more, a 3 % inflation rate, there isn’t a whole lot of uproar. If that was leading to 5%, 6%, 7 % inflation rates, I think you’d see a much different response and priority of addressing that.
Lewis A Weiss (09:31.84)
Speaking about increasing expenses, here in New Jersey, and I know in Florida and I know in Massachusetts because that’s where I’ve been in the recent months, every restaurant now charges three, three and a half percent if you use a credit card.
And I’ve walked at it. I’ve talked to business owners, restaurant owners about the unfairness of what they’re doing because that’s a business expense. So why, if you go into a restaurant, you have a steak, why isn’t there a steak surcharge? Why isn’t there a coffee surcharge? But they decided to throw a surcharge on credit card charges.
And everybody’s doing it now. So that is a direct effect on the inflation across a broad swath of the service industry, restaurants. You have any comments on that?
Steve Miller (10:38.166)
I was probably, how long ago is it now? Probably three years ago, four years ago, was presented with an opportunity to get involved with a company that was making software that would enable you to do that, to add those charges onto retail fees. Because they view that as an opportunity where they wouldn’t get a whole lot of pushback from the consumer of, I get it, you pay 3%.
of what I pay to the company for using the credit card, I can use cash. And for the local guys, where you have that loyalty, I carry cash and I use cash. For the bigger guys, where you’re seeing, say it’s a $300 meal or $400 for four people, where you have a bottle of wine, I’m not gonna carry $600 in my pocket to the restaurant.
Lewis A Weiss (11:33.742)
Right. Well, there’s the other side to that also that when you are paying cash, there’s a pretty good idea that that cash is going into somebody’s pocket. But I don’t want to write out anybody. That’s right. So that’s much better.
Steve Miller (11:35.176)
So it’s kind of a catch-22, isn’t it?
but it’s not going into the credit card company’s pocket.
I’m not making a judgment there, just an observation.
Lewis A Weiss (12:01.006)
Yeah. So let’s talk about housing for a second. Housing’s down.
Credit card, bank interest is up. Housing sales are down. Home improvements is down. So what’s your take on that?
Steve Miller (12:24.502)
Yeah, I think everyone was disappointed in the level at which rate cuts flowed into or didn’t flow into mortgage rates. you look, we bought a new house, excuse me. We bought a new house when the interest rates were at 6.99%. So we went from 25 % of our mortgage payment being interest to 85%.
Lewis A Weiss (12:33.122)
Right.
Steve Miller (12:54.166)
90 % of our mortgage payment being interest. You just can’t afford, you you can’t afford the same thing for the same amount of money. And when you get into the new houses, new housing certainly is seeing the pressure because they’re carrying all of the weight of the higher costs for labor, higher costs for lumber, higher costs for aluminum, copper, steel products. So it’s, you know, it’s kind of the…
what do they call the perfect storm where labor is more limited. Not saying that in the construction industry, they’re using people that were not qualified to be doing construction work, but the pressure on labor as well as pressure on materials, as well as pressure on mortgage rates is causing them to do like that would happen with my son, rate discounting. So he’s paying 4.4%.
Lewis A Weiss (13:25.454)
Mm-hmm.
Steve Miller (13:51.062)
or 3.4 % going to 4.4 % going to 5.4%. You ever heard of that before? Do remember when we had the housing meltdown, when we had free mortgages and things like that?
Lewis A Weiss (13:59.064)
Hello?
Lewis A Weiss (14:04.846)
Well, I have a side story to mention about how bad timing can really get. 1979, I bought a beach house up in Cape Cod, Massachusetts. I paid 17.9 % mortgage rates.
Steve Miller (14:06.102)
Thank
Steve Miller (14:20.318)
Yes, I remember those days a bit.
Lewis A Weiss (14:22.698)
And then when I went to the closing, which I agreed to that absurd price, figuring I was going to pay that mortgage off, it wasn’t a big amount of money, I would close it out very quickly. So I agreed to the 17.9. I then went to the closing and the bank showed up and the buyer and I showed up, the seller showed up. The bank informed us that, this was in the summers in July, informed us that due to the fact that the Portuguese fishermen go home to Portugal in the summer months and they take all their money with them. The bank had no money. They had no money to pay the seller for the house. So they did some fast foot moving.
on trying to get a bank on the phone to agree, which they did, but I was astonished that a bank didn’t have money. Amazing.
Steve Miller (15:25.364)
Yes, yes. I, I, do you think some of the new regulations have impacted that or, or, yeah, okay.
Lewis A Weiss (15:31.054)
Oh yeah, yeah, yeah, for sure. Meanwhile, that house was $65,000 in 1978 and it recently sold for 2.4 million. yeah, well, that I didn’t, I, my son-in-law has told me that I sold away his legacy. So.
Steve Miller (15:38.538)
Yeah.
Steve Miller (15:44.118)
That’s nice appreciation.
Amy Nicklaus (15:46.832)
You should have held on to that ass.
Steve Miller (15:48.822)
That’s not kidding.
Steve Miller (15:54.934)
Ha
Amy Nicklaus (15:56.125)
So let me just, because as I’m coming in here as the layman, so I’m looking at this report and I think to myself, okay, we’re seeing, you know, it says if we’re under industry performance that 14 service industries are reporting growth. So, I mean, everything’s still to me, if I’m looking at this report, looks like while there are some uncertainties, we’ve either remained stable or we have had growth.
within the services industries. So, you know, I think that that’s, there’s something to be said about with all of the uncertainty, there is a lot, in my opinion, you know, there could, it could be based on so much doom and gloom that you hear out there and all the, with everything that’s happening in the world, it could have a much more actual negatives, you know.
Steve Miller (16:26.677)
Absolutely.
Amy Nicklaus (16:48.93)
situation, but it really we’re here. We’re now in April of this year already and we are reporting growth and it is everybody every month keeps talking about uncertainty, which is kind of a unfortunate fact of life and business in general. You know, that’s while there’s more uncertainty now, maybe than there was at other points in time, you know, through history, we go through this all the time to be in this situation right now.
seems like it’s a very positive situation to be in. mean, am I kind of over thinking that? I not seeing it right? Because that’s what a little report looks like to me.
Steve Miller (17:24.694)
Yeah, I think.
Steve Miller (17:34.708)
Yeah, I think there are things that you want to watch out for, like the prices paid and what happens to that over time. But I think you’re exactly correct, Amy. We’re seeing 14 of the 18 services industries reporting growth, and that’s the same as last month. And it’s the highest we’ve seen over the last two years is 14 industries in expansion.
Amy Nicklaus (17:53.573)
Right.
Steve Miller (18:04.534)
The lowest we’ve seen for industries in contraction is three over the last 13 months. And that’s where we are today. And when you look at the average PMI for 2024, we were at 22.4. When you look at it for 25, I believe it was, sorry, did I say 52.4? It’s 52.4. Sorry, 52.4 in 2024.
Amy Nicklaus (18:28.892)
You said 22, but yeah, 52. Right.
Steve Miller (18:34.978)
51.7 in 2025, and the average so far this year is 54.4. So we’re after years of seeing it tick down one or one and a half percent year over year. It looks like we’re in a situation where we might be back to where we were in 2022, 2021, in terms of post, let’s say, historical growth.
Amy Nicklaus (18:40.934)
Right.
Steve Miller (19:02.77)
accounting for some of the anomalies with how fast we did the recovery from COVID from a PMI standpoint. It is good news overall with the concern around prices paid and what oil will do around employment, because what is it? The recession is when someone else loses their job. Depression is when you lose yours. That 48 means that we’re seeing contraction.
across the services industry, slight contraction, but contraction. And then we haven’t really fully baked in AI impact from a negative standpoint. Finance and insurance, consulting, information services, things like that, the tools have been custom built, data analysis, coding, that type of thing. We’re not seeing the full impact of that yet. We are seeing the positive impact of data centers being built, utilities.
having to ramp up to be able to power those facilities and shortages in memory components because of the level of equipment that’s being bought, which means wholesale trade is hopping because they’re the ones that move all by and sell a lot of those components.
Lewis A Weiss (20:15.982)
Steve, so I don’t have to tear through 10 pages of this report, is of the three or four industries that are contracting, is one of them mining?
Steve Miller (20:32.246)
It is. We have real estate, rental and leasing, retail trade and agriculture, forestry, fishing and hunting. Mining is actually one, two, three, the fourth highest in expansion, rate of expansion.
Lewis A Weiss (20:48.684)
Really? That’s interesting. So I always look at the mining number as kind of an anomaly to the services report. But I didn’t invent it. I’m not going to complain about it. It just seems like it has a potential effect on the overall number when it’s not really a services industry. Or I don’t think it is. Do you want to argue that? Well,
Steve Miller (21:13.11)
Well, it’s not really a manufacturing industry either. So I think you have people fall on either side.
Lewis A Weiss (21:19.498)
I got it. got it. So, okay.
Amy Nicklaus (21:21.978)
And if we go back into the housing market discussion, because I think this is a very, very big subject, especially as we go into like the spring summer where typically the housing market, that’s when everyone puts their house for sale. That’s when it typically starts to go up. think people are moving before school starts. They want to get settled over the summer.
I know that in my neighborhood in particular, a house goes up, it’s gone before you can do anything with it. mean, you’re in, you’re out, because there’s so much less available on the market. Do you foresee any change of that in the future? I have seen that some interest rates are going down or starting to go down. going into the next few months, what are your thoughts on that?
Amy Nicklaus (22:45.915)
Right.
Lewis A Weiss (22:57.294)
Steve, thank you very much. We’ll see you next month. And thank you, So everybody.
Amy Nicklaus (22:57.884)
Thank you so much, Steve.
Spotify
Apple Podcasts
Podbean
YouTube