Services Economic Activity Retreats Slightly in February But Remains in Growth Mode

Economic activity in the services sector grew in February for the 21st month in a row, with the Services PMI registering 56.5%, according to the latest Services ISM Report on Business from the Institute for Supply Management.

“In February, the Services PMI registered 56.5%, 3.4 percentage points below January’s reading of 59.9%,” Anthony Nieves, CPSM, CPM, APP, CFPM, chair of the ISM’s services business survey committee, said. “The Business Activity Index registered 55.1%, a decrease of 4.8 percentage points compared to the reading of 59.9% in January, and the New Orders Index figure of 56.1% is 5.6 percentage points lower than the January reading of 61.7%.

“The Supplier Deliveries Index registered 66.2%, 0.5 percentage point higher than the 65.7% reported in January. (Supplier Deliveries is the only ISM Report on Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

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

“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.”

The 14 services industries reporting growth in February included construction, transportation and warehousing and mining. The four industries reporting a decrease in February were real estate, rental and leasing; arts, entertainment and recreation; agriculture, forestry, fishing and hunting; and accommodation and food services.

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