The ISM Non-Manufacturing Index was up to 57.3 in February after 55.5 in January. It was the highest since 58.5 in February 2019 when activity was rebounding following the partial federal government shutdown. The effects of the COVID-19 outbreak have not yet cut into activity and orders. Respondent’s comments point to an overall positive outlook, but there are some areas of shortages that could restrain activity. It would seem that the availability of medical supplies and personal protection equipment are strained at present. What may be more of a check at the moment is a lack of labor and the quality of workers.
The story for the services sector is more positive than that for manufacturing where the five months of downturn have given way to two months of anemic growth and is in danger of slipping again. The ISM Non-Manufacturing Index has now shown expansion in the sector for 121 straight months, nearly as long as the 127 months of expansion for the US economy.
Among index components, business activity was down to 57.8 in February from 60.9 in January but this is still a robust pace. Supplier delivery times widened to 52.4 in February after 51.7 in January. The level does not indicate any particular bottlenecks in deliveries overall, but may not fully capture some industry specific shortages like the above mentioned medical gear. Employment was up to 55.6 in February after 53.1 in January. Labor shortages may be preventing gains from being faster. New orders climbed to 63.1 in February from 56.2 in January and was the highest since 65.2 in February 2019.
Order backlogs grew to 53.2 in February from 45.5 in January and was the first expansion since 54.0 in September 2019. This may reflect the uptick in new export orders to 55.6 in February after 50.1 in January. Export orders are the strongest since mid-2019. Imports dipped to 52.6 in February from 55.0 in January and may have been due in part to limited supplies of items like medical supplies.
Inventories rose to 53.9 in February after 46.5 in January and was the fastest increase in over a year. There may be some restocking going on to meet renewed demand.
The index for prices paid fell to 50.8 in February after 55.5 in January, likely due to the drop in energy costs.
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