Services PMI® at 55.1%; February 2023 Services ISM® Report On Business®

Business Activity Index at 56.3%; New Orders Index at 62.6%; Employment Index at 54%; Supplier Deliveries Index at 47.6%

TEMPE, Ariz., March 3, 2023 /PRNewswire/ — Economic activity in the services sector expanded in February for the second consecutive month as the Services PMI^® registered 55.1 percent, say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®. The sector has grown in 32 of the last 33 months, with the lone contraction in December. 

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: “In February, the Services PMI^® registered 55.1 percent, 0.1 percentage point lower than January’s reading of 55.2 percent. The composite index indicated growth in February for the second consecutive month after a reading of 49.2 percent in December, the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 56.3 percent, a 4.1-percentage point decrease compared to the reading of 60.4 percent in January. The New Orders Index expanded in February for the second consecutive month after contracting in December for the first time since May 2020; the figure of 62.6 percent is 2.2 percentage points higher than the January reading of 60.4 percent.

“The Supplier Deliveries registered 47.6 percent in February, indicating the fastest delivery performance since June 2009, when the index registered 46 percent. The February reading is 2.4 percentage points lower than the 50 percent recorded in January. (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 was down 2.2 percentage points in February, to 65.6 percent. The Inventories Index grew in February after contracting for eight consecutive months; the reading of 50.6 percent is up 1.4 percentage points from January’s figure of 49.2 percent. The Inventory Sentiment Index (55.3 percent, down 0.5 percentage point from January’s reading of 55.8 percent) expanded for the third consecutive month after four straight months in contraction.

“Thirteen industries reported growth in February. The Services PMI^®, by being above 50 percent for a second month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector. The composite index has indicated expansion for all but three of the previous 156 months.”

Nieves continues, “Business Survey Committee respondents indicated that they are mostly positive about business conditions. Suppliers continue to improve their capacity and logistics, as evidenced by faster deliveries. The employment picture has improved for some industries, despite the tight labor market. Several industries reported continued downsizing.” 

INDUSTRY PERFORMANCE
The 13 services industries reporting growth in February — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Public Administration; Construction; Professional, Scientific & Technical Services; Retail Trade; Utilities; Other Services; Educational Services; Finance & Insurance; Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Health Care & Social Assistance; and Accommodation & Food Services. The four industries reporting a decrease in the month of February are: Wholesale Trade; Transportation & Warehousing; Information; and Management of Companies & Support Services.

WHAT RESPONDENTS ARE SAYING

• “Sales activity is generally strong, despite economic headwinds.” [Accommodation & Food Services]
• “Activity is steady. Costs continue to escalate, eliminating any profit we had hoped for in the first and second quarters.” [Construction]
• “There is some slight improvement in availability and delivery turns.” [Educational Services]
• “Upward pricing pressures have eased slightly but are still elevated.” [Finance & Insurance]
• “Inflation, though somewhat eased from the peaks of the past six months, continues to drive higher-pricing demands from suppliers. Hospital volumes are improving but have not returned to pre-pandemic levels in all cases.” [Health Care & Social Assistance]
• “The current dynamics in the marketplace are such that it is getting harder to reduce costs. Most industries are being pinched by inflation and more expensive labor markets. Before, cost reduction was the goal; it’s now cost avoidance. That said, since we’re not able to reduce cost to maintain margins, we have to reduce the employee base more aggressively to achieve margins.” [Information]
• “Seeing a slow decline in activity, but not a collapse like in 2009.” [Management of Companies & Support Services]
• “Generally flat activity level.” [Mining]
• “Starting the new business cycle with a noticeable uptick in demand.” [Professional, Scientific & Technical Services]
• “Continual effort to right-size inventory to match lower sales forecasts for the coming year.” [Retail Trade]
• “The electric utility industry has seen some improvement on lead times and availability in some categories, but there are still issues with conductors, connectors, rubber-molded items and transformers.” [Utilities]
• “Business activity has improved slightly compared to last month. Supplier deliveries are faster, and fill rates from manufacturers seem to be stabilizing. Customers now are very cost conscious and looking for lower-priced product options.” [Wholesale Trade]

Services ISM^® Report On Business^® data is seasonally adjusted for the Business Activity, New Orders, Employment and Prices indexes. Manufacturing ISM^® Report On Business^® data is seasonally adjusted for New Orders, Production, Employment and Inventories indexes.
*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE, AND IN SHORT SUPPLY

Commodities Up in Price
Chemicals (3); Copper Wire; Eggs (2); Electrical Components (25); Electronic Components (2); Diesel Fuel*; Gasoline*; Labor (27); Labor — Contract (2); Labor — Services; Labor — Skilled; Soybean Products; Lumber; Oriented Strand Board (OSB); Pallets (2); Services; and Steel Products*.

Commodities Down in Price
Diesel Fuel* (2); Gasoline* (7); PVC Products; and Steel Products* (2).

Commodities in Short Supply
Appliances (3); Blood Collection Tubes; Circuit Breakers (2); Computer Accessories; Computer Chips; Containers; Eggs; Electronic Components (2); Labor (4); Labor — Construction; Labor — Technology and Web-Related; Needles and Syringes (2); Semiconductors (2); Tourniquets; Transformers (6); and Vehicles (8). 

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

FEBRUARY 2023 SERVICES INDEX SUMMARIES

Services PMI^®
In February, the Services PMI^® registered 55.1 percent, a 0.1-percentage point decrease compared to the January reading of 55.2 percent. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates it is generally contracting.

A Services PMI^® above 49.9 percent, over time, generally indicates an expansion of the overall economy. Therefore, the February Services PMI^® indicates the overall economy is growing for the second consecutive month after one month of contraction in December. Nieves says, “The past relationship between the Services PMI^® and the overall economy indicates that the Services PMI^® for February (55.1 percent) corresponds to a 1.8-percent increase in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI^® HISTORY

Business Activity
ISM^®‘s Business Activity Index registered 56.3 percent in February, a decrease of 4.1 percentage points from the reading of 60.4 percent in January, indicating growth for the 33rd consecutive month. Comments from respondents include: “More elective surgeries after the holiday season” and “Customer growth.”

The 14 industries reporting an increase in business activity for the month of February — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Public Administration; Retail Trade; Construction; Information; Utilities; Other Services; Professional, Scientific & Technical Services; Educational Services; Health Care & Social Assistance; Finance & Insurance; Management of Companies & Support Services; Transportation & Warehousing; and Accommodation & Food Services. The two industries reporting a decrease in business activity for the month of February are: Real Estate, Rental & Leasing; and Wholesale Trade.

New Orders
ISM^®‘s New Orders Index registered 62.6 percent, up 2.2 percentage points from the January reading of 60.4 percent. New orders expanded for the second consecutive month after contracting in December, ending a string of 30 consecutive months of growth. Comments from respondents include: “Increased requests for service and components” and “Customers starting to ramp up for the spring season.”

Fourteen industries reported growth of new orders in February, in the following order: Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Construction; Other Services; Public Administration; Professional, Scientific & Technical Services; Utilities; Educational Services; Retail Trade; Accommodation & Food Services; Finance & Insurance; Management of Companies & Support Services; Transportation & Warehousing; and Health Care & Social Assistance. The three industries reporting a decrease in new orders in February are: Mining; Information; and Wholesale Trade.

Employment
Employment activity in the services sector grew in February after an unchanged reading in January. ISM^®‘s Employment Index registered 54 percent, up 4 percentage points from the January figure of 50 percent. Comments from respondents include: “Increase in applications resulting in more new hires” and “Level of employment higher to backfill positions in support of workloads.”

The 10 industries reporting an increase in employment in February — listed in order — are: Mining; Arts, Entertainment & Recreation; Construction; Accommodation & Food Services; Retail Trade; Public Administration; Professional, Scientific & Technical Services; Health Care & Social Assistance; Utilities; and Finance & Insurance. The four industries reporting a decrease in employment in February are: Management of Companies & Support Services; Other Services; Transportation & Warehousing; and Educational Services.

Supplier Deliveries
The Supplier Deliveries Index registered 47.6 percent, down 2.4 percentage points from the 50 percent recorded in January. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. The February reading indicates supplier deliveries are faster compared to the previous month. Comments from respondents include: “Suppliers have been catching up on their backlogs” and “Suppliers’ lead times are coming down, and capacities have opened up.”

The three industries reporting slower deliveries in February are: Public Administration; Educational Services; and Finance & Insurance. The 10 industries reporting faster supplier deliveries for the month of February — listed in order — are: Construction; Information; Mining; Wholesale Trade; Transportation & Warehousing; Accommodation & Food Services; Retail Trade; Professional, Scientific & Technical Services; Utilities; and Health Care & Social Assistance.

Inventories
The Inventories Index grew in February after eight consecutive months of contraction, preceded by four months of growth (February-May 2022) and eight months of contraction (June 2021-January 2022). The reading of 50.6 percent was a 1.4-percentage point increase from the 49.2 percent reported in January. Of the total respondents in February, 41 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “We lowered inventory at calendar year to hit company objectives; we are now ramping up for 2023” and “Stocking up where we can to avoid future long lead times.”

The seven industries reporting an increase in inventories in February — listed in order — are: Mining; Utilities; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Transportation & Warehousing; Public Administration; and Wholesale Trade. The four industries reporting a decrease in inventories in February are: Other Services; Information; Construction; and Health Care & Social Assistance. Seven industries reported no change in inventories in February.

Prices
Prices paid by services organizations for materials and services increased in February for the 69th consecutive month, with the index registering 65.6 percent, 2.2 percentage points lower than the 67.8 percent recorded in January. The Prices Index continues to indicate movement toward equilibrium, with an eighth consecutive reading near or below 70 percent, following nine straight months of readings above 80 percent.

Sixteen services industries reported an increase in prices paid during the month of February, in the following order: Arts, Entertainment & Recreation; Mining; Public Administration; Health Care & Social Assistance; Construction; Finance & Insurance; Utilities; Agriculture, Forestry, Fishing & Hunting; Information; Educational Services; Real Estate, Rental & Leasing; Management of Companies & Support Services; Professional, Scientific & Technical Services; Retail Trade; Wholesale Trade; and Transportation & Warehousing. The only industry reporting a decrease in prices for February is Accommodation & Food Services.

NOTE: Commodities reported as up in price and down in price are listed in the commodities section of this report.

Backlog of Orders
The ISM^® Services Backlog of Orders Index grew in February for the 26th consecutive month. The index registered 52.8 percent, 0.1 percentage point lower than the January reading of 52.9 percent. Of the total respondents in February, 50 percent indicated they do not measure backlog of orders. Respondent comments include: “Still experiencing some material shortages” and “The fill rate is better, and many out-of-stock SKUs are now in stock.”

The five industries reporting an increase in order backlogs in February are: Management of Companies & Support Services; Public Administration; Utilities; Professional, Scientific & Technical Services; and Construction. The seven industries reporting a decrease in order backlogs in February — listed in order — are: Arts, Entertainment & Recreation; Mining; Information; Wholesale Trade; Transportation & Warehousing; Finance & Insurance; and Health Care & Social Assistance. Six industries reported no change in order backlogs in February.

New Export Orders
Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based companies grew in February for the second consecutive month after three months of contraction preceded by an eight-month period of growth. The New Export Orders Index registered 61.7 percent, a 2.7-percentage point increase from the 59 percent reported in January. Of the total respondents in February, 81 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.

The eight industries reporting an increase in new export orders in February — listed in order — are: Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Construction; Management of Companies & Support Services; Retail Trade; Utilities; Professional, Scientific & Technical Services; and Finance & Insurance. The three industries reporting a decrease in new export orders in February are: Other Services; Transportation & Warehousing; and Wholesale Trade. Seven industries reported no change in new export orders.

Imports
The Imports Index grew for the sixth consecutive month in February after three months of contraction, registering 52.6 percent, down 0.4 percentage point from January’s reading of 53 percent. Seventy percent of respondents reported that they do not use, or do not track the use of, imported materials.

The six industries reporting an increase in imports for the month of February — listed in order — are: Retail Trade; Utilities; Management of Companies & Support Services; Health Care & Social Assistance; Professional, Scientific & Technical Services; and Transportation & Warehousing. The only industry that reported a decrease in imports in February is Wholesale Trade. Eleven industries reported no change in imports in February.

Inventory Sentiment
The ISM^® Services Inventory Sentiment Index grew in February for the third consecutive month, following four months of contraction. The index registered 55.3 percent, a 0.5-percentage point decrease from January’s figure of 55.8 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels.

The nine industries reporting sentiment that their inventories were too high in February — listed in order — are: Arts, Entertainment & Recreation; Construction; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Other Services; Retail Trade; Health Care & Social Assistance; Utilities; and Information. The four industries reporting a feeling that their inventories were too low in February are: Transportation & Warehousing; Management of Companies & Support Services; Educational Services; and Professional, Scientific & Technical Services.

About This Report
DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report’s information reflects the entire U.S., while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of February 2023.

The data presented herein is obtained from a survey of supply executives in the services sector based on information they have collected within their respective organizations. ISM^® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation
The Services ISM^® Report On Business^® (formerly the Non-Manufacturing ISM^® Report On Business^®) is based on data compiled from purchasing and supply executives nationwide. Membership of the Services Business Survey Committee (formerly Non-Manufacturing Business Survey Committee) is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). The Services Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Public Administration; and Other Services (services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating Services). The data are weighted based on each industry’s contribution to GDP. According to the BEA estimates for 2021 GDP (released December 22, 2022), the six largest services sectors are: Real Estate, Rental & Leasing; Government; Professional, Scientific, & Technical Services; Health Care & Social Assistance; Information; and Finance & Insurance.

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change, Inventory Sentiment, Imports, Prices, Employment and Supplier Deliveries), this report shows the percentage reporting each response and the diffusion index. Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The Services PMI^® is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

A Services PMI^® above 49.9 percent, over time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 49.9 percent, it is generally declining. The distance from 50 percent or 49.9 percent is indicative of the strength of the expansion or decline.

The Services ISM^® Report On Business^® survey is sent out to Services Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on U.S. operations for the current month. ISM^® receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses to give the most accurate picture of current business activity. ISM^® then compiles the report for release on the third business day of the following month.

The industries reporting growth, as indicated in the Services ISM^® Report On Business^® monthly report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

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About Institute for Supply Management^®
Institute for Supply Management^® (ISM^®) serves supply management professionals in more than 90 countries. Its 50,000 members around the world manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM leads the profession through the ISM^® Report On Business^®, its highly regarded certification programs and the ISM^® Advance^™ Digital Platform. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

The full text version of the Services ISM^® Report On Business^® is posted on ISM^®‘s website at www.ismrob.org on the third business day* of every month after 10:00 a.m. ET.

The next Services ISM^® Report On Business^® featuring March 2023 data will be released at 10:00 a.m. ET on Wednesday, April 5, 2023.

*Unless the New York Stock Exchange is closed.

SOURCE Institute for Supply Management