Market Direction and Stock Trends

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ISM Services: Continued Expansion in February
By: Jill Mislinski | March 3, 2021

The Institute of Supply Management (ISM) has now released the February Services Purchasing Managers' Index (PMI). The headline Composite Index is at percent 55.3, down 3.4 from 58.7 last month. Today's number came in below the Investing.com forecast of 58.7 percent.

Here is the report summary:

(Tempe, Arizona) – Economic activity in the services sector grew in February for the ninth month in a row, say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “The Services PMI® registered 55.3 percent, 3.4 percentage points lower than the January reading of 58.7 percent. This reading indicates the ninth straight month of growth for the services sector, which has expanded for all but two of the last 133 months.

“The Supplier Deliveries Index registered 60.8 percent, up 3 percentage points from January’s reading of 57.8 percent. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Prices Index figure of 71.8 percent is 7.6 percentage points higher than the January reading of 64.2 percent, indicating that prices increased in February, and at a faster rate. According to the Services PMI®, 17 services industries reported growth. The composite index indicated growth for the ninth consecutive month after a two-month contraction in April and May. There was a pullback in the rate of growth in the services sector in February. Respondents are mostly optimistic about business recovery and the economy. Production-capacity constraints, material shortages and challenges in logistics and human resources are impacting the supply chain,” says Nieves. Source

Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows the Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.



The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 55.5 percent is down 4.4 from a seasonally adjusted 59.9 the previous month.



For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualize the short-term trends.

Theoretically, this indicator should become more useful as the time frame of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains our intention to keep this series on the radar.

Here is a table showing the trend in the underlying components.



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