Good News From the Services Sector

By SBE Council at 5 April, 2021, 6:30 pm

by Raymond J. Keating-

The latest information from surveys on the services sector offers more good news on the direction of our economy.

All Services Industries Report Growth

The Institute for Supply Management's Services PMI registered an all-time high in March 2021 at 63.7 percent, which was up by eight percentage points from February. The previous high had been hit in October 2018. All 18 services industries reported growth in March.

A similar story was told by the IHS Markit U.S. Services PMI, which reported 'a substantial increase in business activity across the U.S. service sector, and one that was the steepest for almost seven years.'

Business Optimism Rebounding

For good measure, business optimism was up: 'The degree of confidence was robust overall and among the strongest for six years. Optimism was commonly attributed to the ongoing vaccine roll-out and hopes of a substantial boost to new sales if social distancing measures are further eased during 2021.'

As was the case with the manufacturing reports, there were supply chain and pricing concerns. But make no mistake, this is overwhelmingly positive. As Chris Williamson, Chief Business Economist at IHS Markit, pointed out, 'The recent surge in service sector growth shows no sign of abating, with another impressive performance in March rounding off a quarter in which the PMI surveys indicate that the economy grew at an annualized rate of approximately 5%.'

Also, keep in mind that other projections line up with Williamson's expectation. For example, the Federal Reserve's most recent economic projections from board members has a range of expected real GDP growth for 2021 of 5.0 percent to 7.3 percent.

That's the kind of growth we need to see to get output, income and jobs back to where we were pre-pandemic, and what we need to see going forward in terms of a much-needed robust expansion.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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