Services Sector Economic Activity Expands in February

Economic activity in the services sector grew in February for the ninth month in a row, according to the latest Services ISM Report on Business from the Institute for Supply Management.

“The Services PMI registered 55.3%, 3.4 percentage points lower than the January reading of 58.7%. This reading indicates the ninth straight month of growth for the services sector, which has expanded for all but two of the last 133 months,” Anthony Nieves, CPSM, CPM, APP, CFPM, chair of the Institute for Supply Management services business survey committee, said. “The Supplier Deliveries Index registered 60.8%, up three percentage points from January’s reading of 57.8%. (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 figure of 71.8% is 7.6 percentage points higher than the January reading of 64.2%, indicating that prices increased in February, and at a faster rate. According to the Services PMI, 17 services industries reported growth. The composite index indicated growth for the ninth consecutive month after a two-month contraction in April and May. There was a pullback in the rate of growth in the services sector in February. Respondents are mostly optimistic about business recovery and the economy. Production capacity constraints, material shortages and challenges in logistics and human resources are impacting the supply chain.”

Construction, transportation and warehousing, and finance and insurance were among the 17 services industries that reported growth in February. Real estate, rental and leasing was the only services industry to report contracting in February.

What Respondents Are Saying

  • “Suppliers are taking the opportunity with the commodity price increases in the last few months to propose price increases that are above and beyond normal expectations, causing significant concern. Business growth remains optimistic on the emergence of a post-coronavirus [COVID-19] era in [the] second half of 2021. U.S. port delays are problematic.” (Accommodation and Food Services)
  • “The declining COVID-19 cases in the four states we operate in, combined with the increased vaccination rates, should bode well for our increased business activity moving into the second quarter of 2021.” (Arts, Entertainment and Recreation)
  • “Sales of residential real estate continue to be strong, even outstripping supply. Cost inflation in building materials seen as shortages develop from sporadic COVID-19 closures at manufacturing facilities. Port congestion on the West Coast [and] winter weather in Canada closing mills and restricting truck shipping are contributing to product shortages nationwide.” (Construction)
  • “COVID-19 restrictions continue to affect the number of students either applying to college, living on campus or finding alternative means of a valuable education. As such, revenues have decreased while expenses increased.” (Educational Services)
  • “Business is steady during Q1 2021.” (Finance and Insurance)
  • “Exponential demand for critical supplies due to [the] pandemic is driving distributer allocations and forcing alternative sourcing.” (Health Care and Social Assistance)
  • “Our company has an overall positive outlook, with new COVID-19 cases trending down nationally and vaccine distribution coming online. However, possible changes to the regulatory environment for oil and gas is a looming negative influence.” (Management of Companies and Support Services)
  • “The business continues to reduce real estate/brick-and-mortar [operations] and transition to a work-from-home model. Innovation is the watchword in all things; as such, the need to right-size all consumption as patterns have changed.” (Information)
  • “Supplier deliveries continue to be an issue as well as lead times. Additionally, price increases are occurring with more frequency for products containing raw materials, such as copper and steel.” (Retail Trade)
  • “Construction and customer activity remains robust. Many materials have inconsistent lead times or are facing delivery delays.” (Utilities)
  • “We are seeing an ongoing influx of price increases due to raw material shortages, labor shortages and transportation delays.” (Wholesale Trade)
  • “We were excited [in January] when orders and activity were increasing. Now, they are not receding, but they’re flat month over month. That’s not the rebound we were hoping for.” (Professional, Scientific and Technical Services)

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