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Despite sequential decline, non-manufacturing still grows in February, says ISM

By Jeff Berman, Group News Editor
March 05, 2014

Even with some slippage for key metrics, the Institute for Supply Management (ISM) reported today the non-manufacturing activity in February remained on a growth path for the 49th consecutive month in its February Non-Manufacturing ISM Report on Business. 

The NMI, the ISM’s index to measure growth, dipped 2.4 percent to 51.6 in February. A reading above 50 represents growth. The February PMI is 2.7 percent below the 12-month average of 54.3.

The report’s four key metrics, including the NMI, were mixed in February. Business Activity/Production was down 1.7 percent to 54.6 and grew for the 54th straight month. New Orders inched up 0.5 percent to 50.9. Employment decreased 8.9 percent to 47.5, marking the first time it has contracted in 25 months.

“The NMI being down is not that bad, when you see that it was dragged down by the anchor of the employment decrease,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “Business Activity/Production is not growing as fast but there is still some decent growth, and New Orders are still going up, even though it was a small increase in terms of incremental growth and will translate into better business activity and maybe some better employment down the road.”

Supplier Deliveries in February slowed 0.5 percent to 53.0 (a reading above 50 indicates slower deliveries), and Inventories remained in growth mode while remaining flat from January to February at 50.5. Prices dipped 3.4 percent to 53.7, despite gains in fuel-related products. Backlog of Orders continued to grow, increasing 3.0 percent to 52.0.

Regarding employment, Nieves said the 8.9 percent drop was a combination of various things, considering in recent months there was strong growth in employment, which was outpacing the new orders index.

“That was due to a bit of aggressiveness by companies in the last quarter of 2013, and 2014 is more of an adjustment than a correction,” said Nieves. “There have also been some weather issues, too, in many parts of the country, which is a pullback and interrupts the work flow for employment for things like interview scheduling, applicants getting to interviews, and people being available.”

The modestly growing data highlighted in the report is in sync with ISM member comments in this month’s report.

A finance and insurance respondent pointed to market conditions being steady and trending slightly lower, and a professional, scientific, and technical services respondent noted that the economy is still “plugging along” but at a very slow rate of growth.

On a year-to-date basis, the ISM data points to slow, incremental growth so far, which is what it called for in its Semiannual report in December.

“Things are staying on that course of slow, incremental growth,” explained Nieves. “Employment was supposed to be experiencing a little bit of growth after a strong reading in January [at 56.4] and coming down and contracting in February we are seeing how it averages out over a trend as opposed to just one month. It is hard to say where things are just yet; it might get easier when we look at the entire first quarter as a whole to get a better idea.”

The difference now between December and January compared to now is that respondents were a bit more confident in December and January, whereas now a bit of uncertainty seems to have returned, Nieves said, adding that there is chance there could be more stability within non-manufacturing data when the winter comes to an end.

An industry analyst said this report was lacking but expects better things ahead.

“Non-manufacturing industries slowed in February, but are still growing,” wrote IHS Global Insight U.S. Economist Ozlem Yaylaci in a research note. “The headline index is at its lowest level since February of 2010. Somewhat disturbing is that the employment index fell below the 50-mark. However, many respondents of the ISM Non-Manufacturing survey blamed the winter weather in February for weaker business activity. This is not a good report. The unseasonably cold winter weather and storms have slowed the economy. We expect things to heat up in the second quarter.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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