–ISM Services Index at 52.6 Vs. 53.4 in December, Just Above 12-Month Average of 52.4
–ISM’s Nieves: Employment Index Slips but Some Firms Still Trying to Fill Positions
–Nieves: Inflation Views Vary; Prices Paid Index Lower but Has Been in Growth Territory for Nearly 7 Years
By Max Sato
(MaceNews) – Business activity in the U.S. services sector stayed in positive territory for the 14th straight month in February but the key index posted a slight pullback amid mixed employment conditions and inflation views after surging to a four-month high on higher new orders at the start of the year, according to the latest survey by the Institute for Supply Management (ISM) released Tuesday.
The ISM index, which shows the directional change of economic activity, fell 0.8 percentage points to 52.6 in February after rising 2.9 points to 53.4 in January after falling 2.0 points to a 12-month low of 50.5.
The index came in below the median economist forecast of 53.0 but just above its 12-month average of 52.4. It is well above the recent lows of 41.7 hit in April 2020 and 40.1 in March 2009, the latter of which is the lowest since the inception of the Services PMI in 2008. But it also remains well below the record high of 67.1 reached in November 2021.
“The slight decrease in the rate of growth in February is a result of faster supplier deliveries and the contraction in the employment index,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “The majority of respondents are mostly positive about business conditions. Respondents remain concerned about inflation, employment and ongoing geopolitical conflicts.”
Employment conditions remain mixed in the services sector as some firms in the construction and food service industries are still struggling to backfill positions while others are holding at post-peak employment levels, Nieves told reporters.
Nieves also said high volume service providers for hotel banquets and office settings are typically looking for contract workers rather than regular hires amid caution over the business outlook. He was asked whether the practice was becoming more widespread. A firm from the management of companies and support services category told the ISM: “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.”
Supply deliveries are basically on a recovery trend with a few bumps in the past several months. In January, deliveries were delayed by bad weather in some U.S. regions, the impact of attacks in the Red Sea, which prompted shipping firms to avoid the Suez Canal in Egypt, as well as congestion at the drought-hit Panama Canal, a key route for cargo going between Asia and the U.S. East Coast.
Shipping delays and elevated food prices have exerted upward pressures on overall costs for service providers, which could keep service prices sticky in the U.S. CPI data and thus leaving Federal Reserve policymakers cautious about lowering interest rates from the current restrictive level.
Nieves told reporters that different firms have varying views on inflation, showing contradiction, but noted that the ISM prices paid index has been in growth territory for nearly seven years, as upward pressures are evident in the costs for groceries and restaurants.
“Inflationary fears persist, yet some things are settling down,” a public administration service provider said. “Layoffs in many large industries, but many businesses are desperate for workers. Lots of contradictions.”
“Inflation is under control and trending downward,” a retailer said. “Pricing of commodities is going up at a slower pace.” A firm from the mining category said, “Commodity prices have dropped in the last quarter, although they have been range-bound over the last year.”
Of the four sub-indexes that directly factor into the services PMI, the business activity index rose 1.4 percentage points to a five-month high of 57.2 in February after being flat at 55.8 in January. It is much lower than 59.2 seen at the start of 2023 but is still above 52.9 in May and 53.3 in April 2023, which were three-year lows.
The new orders index rose 1.1 points to a six-month high of 56.1 in February after rising 2.2 points to 55.0 in January. It indicates expansion for the 14th consecutive month.
The employment index showed contraction for the third time in 12 months, falling 2.5 points to 48.0 after surging 6.7 points to 50.5 in January and slumping 6.8 points to 43.8 in December, which was the lowest since 43.0 in July 2020.
The supplier deliveries index — the only ISM index that is inversed — fell 3.5 points to 48.9 in February after rising 2.9 points to 52.4 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 (with a low of 45.8 in March 2023) reflects the fastest supplier delivery performance since December 2022, when the index stood at 48.5. A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
In other details, the inventories index was in contraction for three months in a row. It fell 2.0 points to a 14-month low of 47.1 in February after slipping 0.5 point to 49.1 in January and following a buildup for the holiday season and higher purchases of personal protective equipment at the start of the flu season in November, when it rose 5.9 points to 55.4.
The prices paid index fell 5.4 points to 58.6 after soaring 7.3 points to an 11-month high of 64.0 in January, when it caused concerns about sticky inflation. The index remains above the recent low of 54.8 in June 2023 but well below its record high of 83.8 hit in March 2022. It has been above the neutral line of 50 for nearly seven years since 49.6 in May 2017.
The index for backlog orders fell 1.1 points to 50.3 in February after rising 2.0 points to 51.4 in January. It is well above 40.9 seen in May 2023, which is the lowest since 46.4 in May 2009.
The new export orders index slipped 4.5 points to 51.6 after rising 5.7 points to a four-month high of 56.1 in January.