Economic activity in the services sector grew in February for the 21st month in a row — with the Services PMI® registering 56.5 percent — say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business®.

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 56.5 percent, 3.4 percentage points below January's reading of 59.9 percent. The Business Activity Index registered 55.1 percent, a decrease of 4.8 percentage points compared to the reading of 59.9 percent in January, and the New Orders Index figure of 56.1 percent is 5.6 percentage points lower than the January reading of 61.7 percent.

“The Supplier Deliveries Index registered 66.2 percent, 0.5 percentage point higher than the 65.7 percent reported 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.)

“The Prices Index registered 83.1 percent, up 0.8 percentage point from the January figure of 82.3 percent. Services businesses are beginning to replenish inventories, as the Inventories Index (50.8 percent, up 1.4 percentage points from January’s reading of 49.4 percent) and the Inventory Sentiment Index (55.3 percent, up 7.8 percentage points from January’s reading of 47.5 percent) grew in February to emerge from contraction or ‘too low’ territory.”

Nieves continues, “According to the Services PMI®, 14 industries reported growth. The composite index indicated growth for the 21st consecutive month after a two-month contraction in April and May 2020. Although there was a pullback for most of the indexes comprising the Services PMI®, in February, growth continues for the services sector, which has expanded for all but two of the last 145 months. Respondents continue to be impacted by supply chain disruptions, capacity constraints, inflation, logistical challenges and labor shortages. These conditions have affected the ability of panelists’ businesses to meet demand, leading to a cooling in business activity and economic growth.”

INDUSTRY PERFORMANCE
The 14 services industries reporting growth in February — listed in order — are: Construction; Transportation & Warehousing; Educational Services; Management of Companies & Support Services; Wholesale Trade; Mining; Utilities; Health Care & Social Assistance; Finance & Insurance; Professional, Scientific & Technical Services; Public Administration; Retail Trade; Information; and Other Services. The four industries reporting a decrease in February are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; and Accommodation & Food Services.

WHAT RESPONDENTS ARE SAYING

• “Raw material increases, labor shortages, wage increases and transportation issues are still the primary issues affecting our operations and pricing.” [Accommodation & Food Services]
• “Supply chain challenges continue to result in lower inventories of products and higher costs. The challenges are at the highest point since COVID-19 began.” [Agriculture, Forestry, Fishing & Hunting]
• “We are projecting 2022 to be busier than 2021. Our business volume should begin to increase significantly in March.” [Arts, Entertainment & Recreation]
• “We are getting price increases with no notice. For example, our engineered wood products supplier gave us a 10 percent to 20 percent (based on SKU) increase, effective immediately. We are also struggling to get materials. Suppliers cite poor employee attendance, elevated employee turnover and positions open longer than normal as they struggle to fill them.” [Construction]
• “Inflation is contributing to budget constraints, supply chain restraints and labor shortages.” [Educational Services]
• “Employee turnover within our company and with our suppliers is causing delays in decisions and orders.” [Finance & Insurance]
• “As the COVID-19 surge starts to loosen its grip, we are planning to resume elective surgeries soon. Demand is still high, as these procedures were delayed while the surge was occurring.” [Health Care & Social Assistance]
• “Business has flattened but holding steady.” [Information]
• “Staffing shortages, supply chain disruptions and rising inflation continue to impact the world economy. Companies are struggling to hire direct employees and non-employee labor because wages continue to increase for both. The Great Resignation is real: Employees, contractors and consultants continue to quit their jobs and engagements for opportunities that pay more and have more flexible work options. Millions of light industrial jobs remain open in the U.S., with limited interest from job seekers. Severe labor shortages are expected well into 2022. Corporations need to increase wages and salaries to attract talent and get work done. Faster wage growth is expected to lead to increased inflation.” [Professional, Scientific & Technical Services]
• “Appear to be on the upswing from COVID-19 from an absenteeism standpoint. Still dealing with long lead times for wire, polyvinyl chloride (PVC), steel, transformers and meters. Winter weather has not had an impact on productivity levels.” [Utilities]