Services PMI® at 52.6%; February 2024 Services ISM® Report On Business®

Business Activity Index at 57.2%; New Orders Index at 56.1%; Employment Index at 48%; Supplier Deliveries Index at 48.9%

TEMPE, Ariz., March 5, 2024 /PRNewswire/ — Economic activity in the services sector expanded in February for the 14th consecutive month as the Services PMI^® registered 52.6 percent, say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®. The sector has grown in 44 of the last 45 months, with the lone contraction in December 2022.

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 52.6 percent, 0.8 percentage point lower than January’s reading of 53.4 percent. The composite index indicated growth in February for the 14th consecutive month after a reading of 49 percent in December 2022, which was the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 57.2 percent in February, which is 1.4 percentage points higher than the 55.8 percent recorded in January. The New Orders Index expanded in February for the 14th consecutive month after contracting in December 2022 for the first time since May 2020; the figure of 56.1 percent is 1.1 percentage points higher than the January reading of 55 percent. The Employment Index contracted for the second time in three months with a reading of 48 percent, a 2.5-percentage point decrease compared to the 50.5 percent recorded in January.

“The Supplier Deliveries Index registered 48.9 percent, 3.5 percentage points lower than the 52.4 percent recorded 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 percent (with a low of 45.8 in March) reflects the fastest supplier delivery performance since December 2022, when the index registered 48.5 percent. (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 registered 58.6 percent in February, a 5.4-percentage point decrease from January’s reading of 64 percent. The Inventories Index contracted in February for the third consecutive month, registering 47.1 percent, a decrease of 2 percentage points from January’s figure of 49.1 percent. The Inventory Sentiment Index (56.7 percent, down 2.6 percentage points from January’s reading of 59.3 percent) expanded for the 10th consecutive month. The Backlog of Orders Index expanded for the second consecutive month in February after two previous months in contraction, registering 50.3 percent, a 1.1-percentage point decrease compared to the January reading of 51.4 percent.

“Fourteen industries reported growth in February. The Services PMI^®, by being above 50 percent for the 14th consecutive month (after a single month of contraction in December 2022 and a prior 30-month period of expansion), continues to indicate sustained growth — but at a slightly slower rate in February — for the sector.”

Nieves continues, “The slight decrease in the rate of growth in February is a result of faster supplier deliveries and the contraction in the Employment Index. The majority of respondents are mostly positive about business conditions. Respondents remain concerned about inflation, employment and ongoing geopolitical conflicts.”

INDUSTRY PERFORMANCE
The 14 services industries reporting growth in February — listed in order — are: Construction; Retail Trade; Public Administration; Health Care & Social Assistance; Accommodation & Food Services; Utilities; Professional, Scientific & Technical Services; Management of Companies & Support Services; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Information; Educational Services; and Transportation & Warehousing. The three industries reporting a decrease in the month of February are: Arts, Entertainment & Recreation; Mining; and Real Estate, Rental & Leasing.

WHAT RESPONDENTS ARE SAYING

• “Red Sea issues have not yet impacted our purchasing conditions, but we continue to monitor the situation very closely.” [Accommodation & Food Services]
• “Business remains strong across the U.S. industrial construction sector. Construction materials levels have returned to pre-coronavirus pandemic levels, and the outlook for 2024 is strong.” [Construction]
• “Continued inflationary pressures and labor price increases are challenging, but we continue to push forward.” [Health Care & Social Assistance]
• “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.” [Management of Companies & Support Services]
• “Commodity prices have dropped in the last quarter, although they have been range-bound over the last year. Production continues steady increase.” [Mining]
• “We are experiencing stabilization from external economic influences. The past 12 months brought significant external shifts that resulted in fairly sizable changes to business objectives and financials. Now that we have absorbed changes and restructured strategic plans, we are on a course for a successful 2024.” [Professional, Scientific & Technical Services]
• “Economy seems unsettled. Inflationary fears persist, yet some things are settling down. High demand for services, although inquiries from contractors for opportunities seem to be only inching upward. Layoffs in many large industries, but many businesses are desperate for workers. Lots of contradictions.” [Public Administration]
• “Business is good. Inflation is under control and trending downward. Pricing of commodities is going up at a slower pace. Manufacturing is good, with no sign of any change in the near future.” [Retail Trade]
• “Labor continues to be in highest demand. Finding qualified and available crews and administrative staff (is still) difficult. Brass fittings and electrical equipment lead times are still very long.” [Utilities]
• “Moderate increases in business activity so far. Improved supplier fill rates and steady pricing have resulted in increased levels of restocking as businesses prepare for spring and summer selling seasons.” [Wholesale Trade]

Services ISM^® Report On Business^® data is seasonally adjusted for the Business Activity, New Orders, Employment and Prices indexes. Manufacturing ISM^® Report On Business^® data is seasonally adjusted for New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE, AND IN SHORT SUPPLY

Commodities Up in Price
Beef Products (2); Chemicals; Construction Contractors (2); Food; Fuel; Gasoline; Gasoline Related Products; Heating, Ventilation and Air Conditioning (HVAC) Products; Insulation; Labor (39); Labor — Contract (6); Labor — Skilled (2); Pharmaceuticals; Propane; and Software Maintenance and Support (3).

Commodities Down in Price
Aluminum Products; Copper Products (2); Hardware; Pallets; and Polyvinyl Chloride (PVC) Products.

Commodities in Short Supply
Brass Fittings; Construction Contractors (2); Electrical Components (2); Labor; Transformers (18); and Vehicles (6).

Note: The number of consecutive months the commodity is listed is indicated after each item.

FEBRUARY 2024 SERVICES INDEX SUMMARIES

Services PMI^®

In February, the Services PMI^® registered 52.6 percent, a 0.8-percentage point decrease compared to the January reading of 53.4 percent. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates it is generally contracting.

A Services PMI^® above 49 percent, over time, generally indicates an expansion of the overall economy. Therefore, the February Services PMI^® indicates the overall economy is growing for the 14th consecutive month after one month of contraction in December 2022. Nieves says, “The past relationship between the Services PMI^® and the overall economy indicates that the Services PMI^® for February (52.6 percent) corresponds to a 1.2-percent increase in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI^® HISTORY

Business Activity
ISM^®‘s Business Activity Index registered 57.2 percent in February, 1.4 percent higher than the 55.8 percent recorded in January, indicating growth for the 45th consecutive month. The Business Activity Index has been in expansion territory since recovering from its coronavirus pandemic lows. Comments from respondents include: “Increase in commercial orders” and “Sales are up over plan; replenishment orders have been placed with the factory.”

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

New Orders
ISM^®‘s New Orders Index registered 56.1 percent, 1.1 percentage points higher than the reading of 55 registered in January. The index indicated expansion for the 14th consecutive month after contracting in December 2022, ending a string of 30 consecutive months of growth. Comments from respondents include: “Many projects in our queue” and “Pent-up demand from weather and approaching the spring build season.”

The 13 industries reporting an increase in new orders for the month of February — listed in order — are: Retail Trade; Information; Accommodation & Food Services; Management of Companies & Support Services; Public Administration; Construction; Finance & Insurance; Health Care & Social Assistance; Utilities; Transportation & Warehousing; Professional, Scientific & Technical Services; Wholesale Trade; and Educational Services. The only industry reporting a decrease in new orders for the month of February is Arts, Entertainment & Recreation.

Employment
Employment activity in the services sector contracted in February for the second time in three months, preceded by six consecutive months of growth from June to November. The Employment Index registered 48 percent, down 2.5 percentage points from the January figure of 50.5 percent. Comments from respondents include: “We have lost employees due to normal attrition and are having issues backfilling these positions” and “Currently holding at post-peak employment levels; however, planning to bring in new associates as spring approaches.”

The six industries reporting an increase in employment in February — listed in order — are: Accommodation & Food Services; Other Services; Construction; Utilities; Public Administration; and Wholesale Trade. The nine industries reporting a decrease in employment in February — listed in order — are: Real Estate, Rental & Leasing; Mining; Arts, Entertainment & Recreation; Finance & Insurance; Educational Services; Retail Trade; Management of Companies & Support Services; Information; and Professional, Scientific & Technical Services.

Supplier Deliveries
In February, the Supplier Deliveries Index indicated faster performance after a single month of slower performance preceded by three consecutive months of faster performance. The index registered 48.9 percent, down 3.5 percentage points from the 52.4 percent recorded in January. The index has been in “faster” territory in 11 of the last 13 months. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. Comments from respondents include: “Better throughput, low backlog and production capacity” and “Supplier on-time delivery and fulfillment percentages are back in the mid-90s across food, beverage and medical.”

The three industries reporting slower deliveries in February are: Educational Services; Professional, Scientific & Technical Services; and Health Care & Social Assistance. The five industries reporting faster supplier deliveries for the month of February are: Accommodation & Food Services; Wholesale Trade; Retail Trade; Construction; and Public Administration. Ten industries indicated no change in February.

Inventories
The Inventories Index contracted for the third consecutive month, and at a faster rate in February. The reading of 47.1 percent was a 2-percentage point decrease compared to the 49.1 percent reported in January. Of the total respondents in February, 49 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Inventory decreased to right-size for customer demand” and “Steady supply chain logistics services allowing us to streamline inventory more effectively.”

The five industries reporting an increase in inventories in February are: Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Professional, Scientific & Technical Services; Educational Services; and Management of Companies & Support Services. The 10 industries reporting a decrease in inventories in February, in order, are: Arts, Entertainment & Recreation; Other Services; Retail Trade; Wholesale Trade; Mining; Construction; Information; Transportation & Warehousing; Public Administration; and Health Care & Social Assistance.

Prices
Prices paid by services organizations for materials and services increased in February for the 81st consecutive month. The Prices Index registered 58.6 percent, 5.4 percentage points lower than the 64 percent registered in January. The February reading is the 20th in a row near or below 70 percent (with nine straight months at or below 60 percent, from April to December 2023), following 10 straight months of readings near or above 80 percent.

Thirteen services industries reported an increase in prices paid during the month of February, in the following order: Other Services; Construction; Public Administration; Finance & Insurance; Professional, Scientific & Technical Services; Retail Trade; Health Care & Social Assistance; Accommodation & Food Services; Arts, Entertainment & Recreation; Educational Services; Utilities; Management of Companies & Support Services; and Information. The three industries reporting a decrease in prices for February are: Mining; Agriculture, Forestry, Fishing & Hunting; and Transportation & Warehousing.

NOTE: Commodities reported as up in price and down in price are listed in the commodities section of this report.

Backlog of Orders
The ISM^® Services Backlog of Orders Index expanded for the second consecutive month following two consecutive months in contraction. The index reading of 50.3 percent is 1.1 percentage points lower than the 51.4 percent reported in January. Of the total respondents in February, 50 percent indicated they do not measure backlog of orders. Respondent comments include: “Business has been picking up, affecting backlog” and “Domestic backlog orders are not that bad, but overseas orders are slower than last month’s (orders) due to the crisis in the Middle East and shipping route disruption.”

The five industries reporting an increase in order backlogs in February are: Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Retail Trade; Construction; and Utilities. The five industries reporting a decrease in order backlogs in February are: Accommodation & Food Services; Mining; Wholesale Trade; Public Administration; and Transportation & Warehousing. Eight industries indicated no change in February.

New Export Orders
Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based companies increased in February for the fourth consecutive month after a sizeable decline into contraction in October preceded by six consecutive months of expansion. The New Export Orders Index registered 51.6 percent, a 4.5-percentage point decrease from the 56.1 percent reported in January. Of the total respondents in February, 79 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.

The six industries reporting an increase in new export orders in February — listed in order — are: Management of Companies & Support Services; Transportation & Warehousing; Utilities; Wholesale Trade; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The only industry reporting a decrease in new export orders in February is Retail Trade. Eleven industries reported no change in new export orders in February.

Imports
The Imports Index expanded at a slower rate in February, registering 54.3 percent, 5.6 percentage points lower than January’s reading of 59.9 percent. The index has indicated expansion in 15 of the last 18 months, with contractions in March and December of 2023 and an “unchanged” status (a reading of 50 percent) in May. Seventy-one percent of respondents reported that they do not use, or do not track the use of, imported materials.

The six industries reporting an increase in imports for the month of February, in order, are: Retail Trade; Information; Construction; Management of Companies & Support Services; Professional, Scientific & Technical Services; and Wholesale Trade. The only industry reporting a decrease in imports in February is Accommodation & Food Services. Eleven industries reported no change in imports in February.

Inventory Sentiment
The ISM^® Services Inventory Sentiment Index grew for the 10th consecutive month in February after one month of contraction in April, preceded by four consecutive months of growth and four months of contraction from August to November 2022. The index registered 56.7 percent, a 2.6-percentage point decrease from January’s figure of 59.3 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels.

The 12 industries reporting sentiment that their inventories were too high in February — listed in order — are: Arts, Entertainment & Recreation; Mining; Other Services; Retail Trade; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Utilities; Educational Services; Transportation & Warehousing; Construction; Information; and Health Care & Social Assistance. The two industries reporting a feeling that their inventories were too low in February are: Real Estate, Rental & Leasing; and Professional, Scientific & Technical Services.

About This Report
DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report’s information reflects the entire U.S., while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of February 2024.

The data presented herein is obtained from a survey of supply executives in the services sector based on information they have collected within their respective organizations. ISM^® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation
The Services ISM^® Report On Business^® (formerly the Non-Manufacturing ISM^® Report On Business^®) is based on data compiled from purchasing and supply executives nationwide. Membership of the Services Business Survey Committee (formerly Non-Manufacturing Business Survey Committee) is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). The Services Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Public Administration; and Other Services (services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating Services). The data are weighted based on each industry’s contribution to GDP. According to BEA estimates (the average of the fourth quarter 2022 GDP estimate and the GDP estimates for first, second, and third quarter 2023, as released on December 21, 2023), the six largest services sectors are: Real Estate, Rental & Leasing; Public Administration; Professional, Scientific, & Technical Services; Health Care & Social Assistance; Information; and Finance & Insurance.

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change, Inventory Sentiment, Imports, Prices, Employment and Supplier Deliveries), this report shows the percentage reporting each response and the diffusion index. Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The Services PMI^® is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

A Services PMI^® above 49 percent, over time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 49 percent, it is generally declining. The distance from 50 percent or 49 percent is indicative of the strength of the expansion or decline.

The Services ISM^® Report On Business^® survey is sent out to Services Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on U.S. operations for the current month. ISM^® receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses to give the most accurate picture of current business activity. ISM^® then compiles the report for release on the third business day of the following month.

The industries reporting growth, as indicated in the Services ISM^® Report On Business^® monthly report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

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About Institute for Supply Management^®
Institute for Supply Management^® (ISM^®) is the first and leading not-for-profit professional supply management organization worldwide. Its community of more than 50,000 in more than 100 countries manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 by practitioners, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM empowers and leads the profession through the ISM^® Report On Business^®, its highly-regarded certification and training programs, corporate services, events, and assessments. The ISM^® Report On Business^®, Manufacturing, Services, and Hospital, are three of the most reliable economic indicators available, providing guidance to supply management professionals, economists, analysts, and government and business leaders. For more information, please visit: www.ismworld.org.

The full text version of the Services ISM^® Report On Business^® is posted on ISM^®‘s website at www.ismrob.org on the third business day* of every month after 10:00 a.m. ET. The one exception is in January, the report is released on the fourth business day of the month.

The next Services ISM^® Report On Business^® featuring March 2024 data will be released at 10:00 a.m. ET on Wednesday, April 3, 2024.

*Unless the New York Stock Exchange is closed.

SOURCE Institute for Supply Management