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ISM Non-Manufacturing Index decrease to 52.6% in February 2024
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Economic activity in the services sector expanded in February for the 14th consecutive month as the Services PMI® registered 52.6 percent, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 44 of the last 45 months, with the lone contraction in December 2022.
The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “In February, the Services PMI® registered 52.6 percent, 0.8 percentage point lower than January’s reading of 53.4 percent. The composite index indicated growth in February for the 14th consecutive month after a reading of 49 percent in December 2022, which was the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 57.2 percent in February, which is 1.4 percentage points higher than the 55.8 percent recorded in January. The New Orders Index expanded in February for the 14th consecutive month after contracting in December 2022 for the first time since May 2020; the figure of 56.1 percent is 1.1 percentage points higher than the January reading of 55 percent. The Employment Index contracted for the second time in three months with a reading of 48 percent, a 2.5-percentage point decrease compared to the 50.5 percent recorded in January.
“The Supplier Deliveries Index registered 48.9 percent, 3.5 percentage points lower than the 52.4 percent recorded in January. The index returned to contraction — indicating that supplier delivery performance was faster after one month in expansion (or ‘slower’) territory. In the last 12 months, the average reading of 48.7 percent (with a low of 45.8 in March) reflects the fastest supplier delivery performance since December 2022, when the index registered 48.5 percent. (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.)
“The Prices Index registered 58.6 percent in February, a 5.4-percentage point decrease from January’s reading of 64 percent. The Inventories Index contracted in February for the third consecutive month, registering 47.1 percent, a decrease of 2 percentage points from January’s figure of 49.1 percent. The Inventory Sentiment Index (56.7 percent, down 2.6 percentage points from January’s reading of 59.3 percent) expanded for the 10th consecutive month. The Backlog of Orders Index expanded for the second consecutive month in February after two previous months in contraction, registering 50.3 percent, a 1.1-percentage point decrease compared to the January reading of 51.4 percent.
“Fourteen industries reported growth in February. The Services PMI®, by being above 50 percent for the 14th consecutive month (after a single month of contraction in December 2022 and a prior 30-month period of expansion), continues to indicate sustained growth — but at a slightly slower rate in February — for the sector.”
Nieves continues, “The slight decrease in the rate of growth in February is a result of faster supplier deliveries and the contraction in the Employment Index. The majority of respondents are mostly positive about business conditions. Respondents remain concerned about inflation, employment and ongoing geopolitical conflicts.”
INDUSTRY PERFORMANCE
The 14 services industries reporting growth in February — listed in order — are: Construction; Retail Trade; Public Administration; Health Care & Social Assistance; Accommodation & Food Services; Utilities; Professional, Scientific & Technical Services; Management of Companies & Support Services; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Information; Educational Services; and Transportation & Warehousing. The three industries reporting a decrease in the month of February are: Arts, Entertainment & Recreation; Mining; and Real Estate, Rental & Leasing.
WHAT RESPONDENTS ARE SAYING
“Red Sea issues have not yet impacted our purchasing conditions, but we continue to monitor the situation very closely.” [Accommodation & Food Services]
“Business remains strong across the U.S. industrial construction sector. Construction materials levels have returned to pre-coronavirus pandemic levels, and the outlook for 2024 is strong.” [Construction]
“Continued inflationary pressures and labor price increases are challenging, but we continue to push forward.” [Health Care & Social Assistance]
“Employers remain cautious about hiring direct employees and are considering utilizing contract labor to cover project and interim work demands as concerns about the economy continue to be front of mind.” [Management of Companies & Support Services]
“Commodity prices have dropped in the last quarter, although they have been range-bound over the last year. Production continues steady increase.” [Mining]
“We are experiencing stabilization from external economic influences. The past 12 months brought significant external shifts that resulted in fairly sizable changes to business objectives and financials. Now that we have absorbed changes and restructured strategic plans, we are on a course for a successful 2024.” [Professional, Scientific & Technical Services]
“Economy seems unsettled. Inflationary fears persist, yet some things are settling down. High demand for services, although inquiries from contractors for opportunities seem to be only inching upward. Layoffs in many large industries, but many businesses are desperate for workers. Lots of contradictions.” [Public Administration]
“Business is good. Inflation is under control and trending downward. Pricing of commodities is going up at a slower pace. Manufacturing is good, with no sign of any change in the near future.” [Retail Trade]
“Labor continues to be in highest demand. Finding qualified and available crews and administrative staff (is still) difficult. Brass fittings and electrical equipment lead times are still very long.” [Utilities]
“Moderate increases in business activity so far. Improved supplier fill rates and steady pricing have resulted in increased levels of restocking as businesses prepare for spring and summer selling seasons.” [Wholesale Trade]
Posted: March 5, 2024 Tuesday 10:00 AM