ISM data shows steady non-manufacturing growth in February

The Institute for Supply Management (ISM) reported today that non-manufacturing activity in February remained on a growth path.

The index ISM uses to measure non-manufacturing growth—known as the NMI—was 56.9 in February, which was 0.2 percent ahead of January and also 0.1 percent ahead of the 12-month average of 56.8. Economic activity in the non-manufacturing sector has grown for the last 61 months, according to ISM.

Two of the report’s four core metrics in February, including the NMI, were up compared to January. Business Activity/Production was down 2.1 percent at 59.4 while still growing at a faster rate for 67 straight months. New orders were down 2.8 percent to 56.7 while also growing for the 67th month in a row, and employment rose 4.8 percent to 56.4 while growing for the 12th straight month.

Fourteen non-manufacturing sectors reported growth in February, with four reporting contraction.

Comments in the report from ISM member respondents showed that the recently settled West Coast port labor dispute had an impact on non-manufacturing operations in February. A health care and social assistance respondent said it was causing shortages, and an information respondent stated that it was slowing down the products his company needs to release to its customers, with waiting and not shipping on time costing the company money.

“When you look at this report compared to last month, last month there were eight industries showing gains, and this time there are 14, which bodes well,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “Even though the rate of growth was slower, it is hitting a wider spectrum. This reflects increased consumer confidence and consumer spending with sectors like travel and tourism and food service growing and serving as good growth indicators, coupled with employment growing, too. It is all intertwined. The non-manufacturing sector has some pretty good legs under it right now.”

Even though new orders and business activity/production were down in February, Nieves noted that they are still solid numbers, given that they came off of a January in which they exceeded expectations. Those numbers are normalizing, which is a good thing, especially if a lower growth rate at those levels translates into a sustainable pattern.

The gain in employment is a byproduct of catch up, with the companies increasing labor forces to keep up with capacity gains.

With the West Coast port labor situation resolved, Nieves said that is a positive, as it has been a financial burden for companies, and also affected top line and bottom line gains.

“But it was not life or death or anything like that as there were workarounds to deal with delays,” he said. “It did not result in delays of truly critical commodities.”

Prices in February were up 4.2 percent at 49.7, and inventories saw a 2.0 percent gain to 54.5. Supplier deliveries slowed at a faster rate, up 1 percent to 55.0. Backlog of orders was up 4.0 percent to 53.0.

These gains equate to an increase in activity and becomes capacity related, according to Nieves.

“When you have backlog and deliveries are slowing, that is a good thing,” he said.

As the first quarter on the year is on the home stretch, Nieves said that current growth levels look sustainable, with the caveat that things could go sideways for a bit, too. He said the non-manufacturing sector over all is humming along at a good sustainable pace with the hope it stays the course, barring any unforeseen circumstances, at a time when the economy continues to show growth.