ISM Services Purchasing Managers Index

Services PMI since 2010The ISM Services Purchasing Managers Index helps determine the overall economic strength of the services sector.  Components evaluated are employment, business activity, new orders, and supplier deliveries, which are then compiled into an index.  The services sector represents a much larger share of the overall U.S. economy when compared to the manufacturing sector, making up approximately 80% of it; the sector’s economic weight makes it an important sign of growth, stagnation, or contraction. Readings above 50 indicate expansion while readings below 50 signal decline. 

In February, the Services PMI decreased by 3.4 percentage points to a reading of 55.3. Despite the decline in the index, last month’s reading represents the ninth consecutive month of expansion in the services industry as the index remains above 50. Only one out of the eighteen sectors included in the index reported a contraction in February, that being the real estate industry.  

Business activity and production grew at a slightly slower rate last month as shown by its corresponding index, which fell by 4.4 points to 59.9. The index measuring New Orders declined by 9.9 points to a reading of 51.9, however, the Backlog of Orders index increased by 4.3 points to 55.2. Likewise, while new orders as a whole are growing at a slower rate, New Export Orders surged by 10.6 points to 57.6. The index that measures Inventories increased by 9.7 points to 58.9. The Employment index declined by 2.5 points to 52.7, and several respondents continue to report labor shortages. Prices increased at a faster rate last month, with the corresponding index increasing by 7.6 points to 71.8. The manufacturing industry also reported rising prices last month, and concerns about inflation are increasing among respondents. Supplier deliveries were slower in February, due in part to shortages in raw materials and to supply chains being disrupted by inclement weather. Overall, respondents in the service industry remain optimistic about the outlook over the next few months. States continue to ease restrictions, and a few have even lifted them entirely. As more people are vaccinated, more states are expected to follow, which will improve conditions for the service industry and for the economy as a whole 

Services PMI

March 3, 2021