Economic activity in the services sector expanded in February for the second consecutive month as the Services PMI® registered 55.1 percent, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 32 of the last 33 months, with the lone contraction in December.

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 55.1 percent, 0.1 percentage point lower than January’s reading of 55.2 percent. The composite index indicated growth in February for the second consecutive month after a reading of 49.2 percent in December, the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 56.3 percent, a 4.1-percentage point decrease compared to the reading of 60.4 percent in January. The New Orders Index expanded in February for the second consecutive month after contracting in December for the first time since May 2020; the figure of 62.6 percent is 2.2 percentage points higher than the January reading of 60.4 percent.

“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.)

“The Prices Index was down 2.2 percentage points in February, to 65.6 percent. The Inventories Index grew in February after contracting for eight consecutive months; the reading of 50.6 percent is up 1.4 percentage points from January’s figure of 49.2 percent. The Inventory Sentiment Index (55.3 percent, down 0.5 percentage point from January’s reading of 55.8 percent) expanded for the third consecutive month after four straight months in contraction.

“Thirteen industries reported growth in February. The Services PMI®, by being above 50 percent for a second month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector. The composite index has indicated expansion for all but three of the previous 156 months.”

Nieves continues, “Business Survey Committee respondents indicated that they are mostly positive about business conditions. Suppliers continue to improve their capacity and logistics, as evidenced by faster deliveries. The employment picture has improved for some industries, despite the tight labor market. Several industries reported continued downsizing.”
INDUSTRY PERFORMANCE

The 13 services industries reporting growth in February — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Public Administration; Construction; Professional, Scientific & Technical Services; Retail Trade; Utilities; Other Services; Educational Services; Finance & Insurance; Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Health Care & Social Assistance; and Accommodation & Food Services. The four industries reporting a decrease in the month of February are: Wholesale Trade; Transportation & Warehousing; Information; and Management of Companies & Support Services.
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]