The ISM Non-Manufacturing Index for February increased to 55.1%, ahead of a consensus 54.5% and just under 55.2% in January. The US services sector expanded in February for the second consecutive month. Business activity for the services sector, which comprises the largest component of U.S. economic activity, has quickly rebounded into growth mode after contracting for the first time since May 2020 in December. The sector has grown in 32 of the last 33 months, with the lone contraction in December. This is supportive for the soft-landing scenario.
The dividing line between expansion and contraction is 50.0%.
“The Supplier Deliveries registered 47.6 percent in February, indicating the fastest delivery performance since June 2009, when the index registered 46 percent. The February reading is 2.4 percentage points lower than the 50 percent recorded in January. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)”
– Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management
Highlights
- The Services PMI index 55.1 versus 54.5 estimate. Prior month 55.2
- The employment index 54.0 versus 49.8 expected. Prior 50.0
- The new orders index 62.6 versus 58.5 expected. Prior 60.4
- The prices paid index 65.6 versus 64.5 expected. Prior 67.8
- The new export orders 61.7 versus 59.0 last month
- The imports 52.6 versus 53.0 last month
- The backlog of orders 52.8 versus 52.9 last month
- The inventories 50.6 versus 49.2 last month
- The supplier deliveries 47.6 versus 50.0 last month
- The inventory sentiment 55.3 versus 55.8 last month
The 12-month average is 55.50 percent, which reflects consistently strong growth in the services sector.
WHAT RESPONDENTS ARE SAYING
- “Sales activity is generally strong, despite economic headwinds.” [Accommodation & Food Services]
- “Activity is steady. Costs continue to escalate, eliminating any profit we had hoped for in the first and second quarters.” [Construction]
- “There is some slight improvement in availability and delivery turns.” [Educational Services]
- “Upward pricing pressures have eased slightly but are still elevated.” [Finance & Insurance]
- “Inflation, though somewhat eased from the peaks of the past six months, continues to drive higher-pricing demands from suppliers. Hospital volumes are improving but have not returned to pre-pandemic levels in all cases.” [Health Care & Social Assistance]
- “The current dynamics in the marketplace are such that it is getting harder to reduce costs. Most industries are being pinched by inflation and more expensive labor markets. Before, cost reduction was the goal; it’s now cost avoidance. That said, since we’re not able to reduce cost to maintain margins, we have to reduce the employee base more aggressively to achieve margins.” [Information]
- “Seeing a slow decline in activity, but not a collapse like in 2009.” [Management of Companies & Support Services]
- “Generally flat activity level.” [Mining]
- “Starting the new business cycle with a noticeable uptick in demand.” [Professional, Scientific & Technical Services]
- “Continual effort to right-size inventory to match lower sales forecasts for the coming year.” [Retail Trade]
- “The electric utility industry has seen some improvement on lead times and availability in some categories, but there are still issues with conductors, connectors, rubber-molded items and transformers.” [Utilities]
- “Business activity has improved slightly compared to last month. Supplier deliveries are faster, and fill rates from manufacturers seem to be stabilizing. Customers now are very cost conscious and looking for lower-priced product options.” [Wholesale Trade]
COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY
Commodities Up in Price
Chemicals (3); Copper Wire; Eggs (2); Electrical Components (25); Electronic Components (2); Diesel Fuel*; Gasoline*; Labor (27); Labor — Contract (2); Labor — Services; Labor — Skilled; Soybean Products; Lumber; Oriented Strand Board (OSB); Pallets (2); Services; and Steel Products*.
Commodities Down in Price
Diesel Fuel* (2); Gasoline* (7); PVC Products; and Steel Products* (2).
Commodities in Short Supply
Appliances (3); Blood Collection Tubes; Circuit Breakers (2); Computer Accessories; Computer Chips; Containers; Eggs; Electronic Components (2); Labor (4); Labor — Construction; Labor — Technology and Web-Related; Needles and Syringes (2); Semiconductors (2); Tourniquets; Transformers (6); and Vehicles (8).
Note: The number of consecutive months the commodity is listed is indicated after each item. *Indicates both up and down in price.
SERVICES PMI® HISTORY
Month Services PMI®
- Feb 2023 55.1
- Jan 2023 55.2
- Dec 2022 49.2
- Nov 2022 56.5
- Oct 2022 54.4
- Sep 2022 56.7
- Aug 2022 56.9
- Jun 2022 55.3
- May 2022 55.9
- Apr 2022 57.1
- Mar 2022 58.3
- Feb 2022 56.5
- Jan 2022 59.9
- Dec 2021 62.3
- Nov 2021 68.4
- Oct 2021 66.7
- Sep 2021 62.6
- Aug 2021 62.2
- Jul 2021 64.1
- Jun 2021 60.7
Average for 12 months – 55.5
High – 58.4
Low – 49.2
Business Activity
ISM®’s Business Activity Index registered 60.4 percent in January, an increase of 6.9 percentage points from the seasonally adjusted reading of 53.5 percent in December, indicating growth for the 32nd consecutive month. Comments from respondents include: “New calendar year, new projects, and people returning from vacation” and “Projects running over and year-end projects starting.”
The 12 industries reporting an increase in business activity for the month of January — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Utilities; Public Administration; Other Services; Management of Companies & Support Services; Educational Services; Accommodation & Food Services; Health Care & Social Assistance; Construction; Professional, Scientific & Technical Services; Finance & Insurance; and Wholesale Trade. The four industries reporting a decrease in business activity for the month of January are: Transportation & Warehousing; Mining; Retail Trade; and Information.
New Orders
ISM®’s New Orders Index registered 60.4 percent, up 15.2 percentage points from the seasonally adjusted December reading of 45.2 percent. New orders grew after contracting in December for the first time after 30 consecutive months of growth. Comments from respondents include: “Increased production due to new customers” and “January is typically higher for us than December, as it’s the start of a new year versus a holiday month.”
Eleven industries reported growth of new orders in January, in the following order: Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Utilities; Other Services; Educational Services; Public Administration; Management of Companies & Support Services; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Finance & Insurance; and Health Care & Social Assistance. The four industries reporting a decrease in new orders in January are: Transportation & Warehousing; Information; Mining; and Wholesale Trade.
Employment
Employment activity in the services sector was unchanged in January after contracting in December. ISM®’s Employment Index registered 50 percent, up 0.6 percentage point from the seasonally adjusted December reading of 49.4 percent. Comments from respondents include: “Unable to hire qualified labor — supply is thin” and “We continue to let people go, not replacing any open positions.”
The eight industries reporting an increase in employment in January — listed in order — are: Mining; Agriculture, Forestry, Fishing & Hunting; Information; Accommodation & Food Services; Utilities; Wholesale Trade; Educational Services; and Public Administration. The seven industries reporting a decrease in employment in January — listed in order — are: Finance & Insurance; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Transportation & Warehousing; Retail Trade; Health Care & Social Assistance; and Professional, Scientific & Technical Services.
Supplier Deliveries
The Supplier Deliveries Index registered 50 percent, up 1.5 percentage points from the 48.5 percent recorded in December. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. This month’s reading indicates supplier deliveries is unchanged from December. Comments from respondents include: “Post-holiday freight has proven to be more efficient” and “Shortened lead times and increased fill rates.”
The six industries reporting slower deliveries in January — listed in order — are: Other Services; Management of Companies & Support Services; Real Estate, Rental & Leasing; Utilities; Health Care & Social Assistance; and Educational Services. The nine industries reporting faster supplier deliveries for the month of January — listed in order — are: Construction; Accommodation & Food Services; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Wholesale Trade; Retail Trade; Information; and Professional, Scientific & Technical Services.
Inventories
The Inventories Index contracted in January for the eighth consecutive month after four straight months of growth preceded by an eight-month period of contraction. The reading of 49.2 percent was a 4.1-percentage point increase from the 45.1 percent reported in December. Of the total respondents in January, 40 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Holiday sales drove down inventories, as expected” and “Inventory reduction plan implemented.”
The seven industries reporting an increase in inventories in January — listed in order — are: Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Utilities; Retail Trade; Transportation & Warehousing; and Wholesale Trade. The six industries reporting a decrease in inventories in January — listed in order — are: Construction; Management of Companies & Support Services; Public Administration; Information; Professional, Scientific & Technical Services; and Health Care & Social Assistance.
Prices
Prices paid by services organizations for materials and services increased in January for the 68th consecutive month, with the index registering 67.8 percent, 0.3 percentage points lower than the seasonally adjusted 68.1 percent recorded in December. The Prices Index continues to indicate movement toward equilibrium, with a seventh consecutive reading near or below 70 percent, following nine straight months of readings above 80 percent.
Fifteen services industries reported an increase in prices paid during the month of January, in the following order: Arts, Entertainment & Recreation; Management of Companies & Support Services; Real Estate, Rental & Leasing; Utilities; Educational Services; Other Services; Accommodation & Food Services; Health Care & Social Assistance; Public Administration; Professional, Scientific & Technical Services; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Information; Finance & Insurance; and Wholesale Trade. The only industry reporting a decrease in prices for January is Construction.
Backlog of Orders
The ISM® Services Backlog of Orders Index grew in January for the 25th consecutive month. The index registered 52.9 percent, 1.4 percentage points higher than the December reading of 51.5 percent. Of the total respondents in January, 39 percent indicated they do not measure backlog of orders. Respondent comments include: “Components are still slow to get to suppliers” and “Manufacturers still not meeting lead time targets in a lot of cases.”
The nine industries reporting an increase in order backlogs in January — listed in order — are: Management of Companies & Support Services; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Other Services; Retail Trade; Professional, Scientific & Technical Services; Public Administration; Finance & Insurance; and Health Care & Social Assistance. The five industries reporting a decrease in order backlogs in January are: Mining; Information; Transportation & Warehousing; Wholesale Trade; and Construction.
New Export Orders
Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based companies grew in January after three months of contraction preceded by an eight-month period of growth. The New Export Orders Index registered 59 percent, a 11.3-percentage point increase from the 47.7 percent reported in December. Of the total respondents in January, 73 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.
The eight industries reporting an increase in new export orders in January — listed in order — are: Construction; Real Estate, Rental & Leasing; Retail Trade; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Utilities; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The five industries reporting a decrease in new export orders in January are: Arts, Entertainment & Recreation; Transportation & Warehousing; Information; Educational Services; and Wholesale Trade.
Imports
The Imports Index grew for the fifth consecutive month in January after three months of contraction, registering 53 percent, up 0.3 percentage point from December’s reading of 52.7 percent. Sixty-five percent of respondents reported that they do not use, or do not track the use of, imported materials.
The four industries reporting an increase in imports for the month of January are: Retail Trade; Agriculture, Forestry, Fishing & Hunting; Information; and Professional, Scientific & Technical Services. The three industries that reported a decrease in imports in January are: Mining; Wholesale Trade; and Educational Services. Eleven industries reported no change in imports in January.
Inventory Sentiment
The ISM® Services Inventory Sentiment Index grew in January for the second consecutive month, following four months of contraction. The index registered 55.8 percent, a 0.1-percentage point decrease from December’s figure of 55.9 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels.
The nine industries reporting sentiment that their inventories were too high in January — listed in order — are: Arts, Entertainment & Recreation; Mining; Wholesale Trade; Construction; Information; Retail Trade; Health Care & Social Assistance; Utilities; and Professional, Scientific & Technical Services. The five industries reporting a feeling that their inventories were too low in January are: Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Accommodation & Food Services; and Public Administration.
About Services PMI®
The Services PMI® is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.
About Institute for Supply Management®
Institute for Supply Management® (ISM®) serves supply management professionals in more than 90 countries. Its 50,000 members around the world manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM leads the profession through the ISM Report On Business®, its highly regarded certification programs and the ISM Advance™ Digital Platform. This report has been issued by the association since 1931, except for a four-year interruption during World War II.
The next Services ISM® Report On Business® featuring March 2023 data will be released at 10:00 a.m. ET on Wednesday, April 5, 2023.
Source: ISM World
From The TradersCommunity News Desk