Non-manufacturing activity in February has a record month, reports ISM

Non-manufacturing activity in February remained strong, according to data issued today by the Institute for Supply Management in its monthly Non-Manufacturing Report on Business.

The index ISM uses to measure non-manufacturing growth—known as the NMI—was 57.6 (a reading of 50 or higher indicates growth) in February, which was up 1.1 percent over January and is the highest NMI going back to October 2015. The NMI has grown now for 86 consecutive months, and the February reading is 2.2 percent higher than the 12-month average of 55.4.

Each of the report’s core four metrics, including the NMI, was up in February. Business activity/production rose 3.3 percent to 60.3, while growing for the last 91 months and are at its highest level since February 2011’s 63.8. New orders increased 2.6 percent to 61.2, also up for the last 91 months and at its highest level since August 2015, when it was at 62.7. Employment was up 0.5 percent to 55.2, with growth intact over the last 36 months.

ISM said that 12 industries reported growth in January, including: Utilities; Mining; Management of Companies & Support Services; Other Services; Accommodation & Food Services; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Professional, Scientific & Technical Services; Finance & Insurance; Public Administration; Educational Services; Wholesale Trade; Arts, Entertainment & Recreation; Retail Trade; Transportation & Warehousing; and Construction. The two industries reporting contraction in February were Real Estate, Rental & Leasing and Information.

The strength of non-manufacturing was echoed in comments from ISM member respondents included in the report. A mining respondent said that the strong first quarter in the industry shows promise for 2017, and a respondent for healthcare and social assistance said business remains strong.

“Across the board, these numbers show a positive outlook for the economy and business conditions as well,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee. “There is a level of optimism, with a lot of it based on pure dialogue at this point, as opposed to what has truly been executed. The stock market is reacting, businesses are investing, and it is all about loosening requirements for access to capital, more fair trade policies and laws, and also trying to keep manufacturing production in the U.S.”

These factors, he explained, are leading to a psychological effect of companies becoming very positive. He noted the strength of the Accommodation and Food Services sector, which in recessionary periods often seen travel and tourism activity getting reduced. But its current strength points to confidence going forward, he said, citing an anecdotal saying along the lines of “as the economy goes, is how airlines and food services sector goes.”

Other notable metrics cited in the report include:
-supplier deliveries at 52.0 (a reading above 50 indicates slower deliveries) and slowed for the 14th month in a row;
-inventories increased 4 percent to 52;
-backlog of orders headed up 4 percent to 54; and
-prices fell 1.3 percent to 57.7

The strong state of non-manufacturing matches up well with the ISM’s February manufacturing data, which posted very strong numbers. In assessing the differences between the two reports, Nieves said that manufacturing leads in an out of recessions but does not react as fast as non-manufacturing.

“Non-manufacturing tends to be more resilient because it is made up of so many different industries, whereas manufacturing is more reliant on tangible good production and assembly,” he said. “It is like having a diverse stock portfolio that can weather a storm because you are not invested in any particular segment of the economy where it just does not have the abrupt impact or effect that might be in something that is more dealing with tangible goods.”