Non-manufacturing activity in February hits highest level in a year, says ISM

The Institute for Supply Management (ISM) reported today that non-manufacturing activity in February hit its highest level in a year, with non-manufacturing activity growing for the 38th consecutive month.

In its monthly Non-Manufacturing Report on Business, the ISM reported that the index it uses to measure non-manufacturing growth—known as the NMI—was 56.0 in February, up 0.8 percent from January and above the 12-month average of 54.5. What’s more, the ISM said this is the highest NMI since hitting 57.3 in February 2012.

A reading above 50 represents growth. The PMI, the index on which the ISM’s Manufacturing Report on Business is based on, rose 1.1 percent to 54.2 in February.

The report’s four core metrics each remained in growth mode in February. Business Activity/Production was up 0.5 percent at 56.9, and New Orders were up 3.8 percent at 58.2, and Employment fell 0.3 percent at 57.2 but remained firmly in growth territory.

“The key metrics all were in the right place,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, said in an interview.

February Supplier Deliveries—at 51.5—were 1.0 percent below January, with Inventories up 7.0 percent at 54.0. Prices, which have been mainly been driven by gains in petroleum and petroleum-based products, saw a 3.7 percent rise to 61.7. And Backlog of Order increased 5.5 percent to 54.5.

Nieves said the “perfect scenario” would be for Backlog of Orders to grow, coupled with Supplier Deliveries slowing, with other indices increasing.

“The theme of the day in the past and currently was how companies are doing more with less so therefore with order backlog and new orders up and employment on a positive trend, there does need to be a bigger gap between new orders and employment, because now there is very little separating the two,” he said. “In order for employment to stand on its own longer, there needs to be a larger gap there. The ideal scenario would be for employment to have an upward trend into the high 50s’/low 60s, with new orders in the low 60s. That would be sustainable.”

Comments in the report from ISM member respondents showed increasing signs of confidence in the economy.

A wholesale trade respondent pointed to February bouncing back to forecast levels, and a public administration respondent cited how the economy is picking up at a faster pace than previously projected.

“I think we are on the right track, but I like to see things trend out for a period of time,” explained Nieves. “As we approach the end of the first quarter, things are boding well so far. It is better than anticipated. I have said before that February and March are pivotal months as we get past the lull of post-holiday and get into the swing of things and get a better idea of how things are starting to look heading into summer.”