The ISM Services index slipped to 52.6 in February from 53.4 in January, just shy of the 53.0 consensus expectation. However, growth did become more widespread, with 14 of 18 industries reporting growth for the month – up from ten in January.
The business activity sub-index rose to 57.2, while the new orders index ticked up to 56.1 from 55.0 in January.
The prices paid component tumbled 5.4 percentage points (pp) to 58.6 – giving up much of January’s gain. The supplier deliveries sub-index fell to 48.9, indicating shorter delivery times compared to January.
The employment sub-component flipped back to signaling contraction, falling 2.5 pp to 48.0.
Key Implications
Another month of expansion in the service sector – albeit at a slightly slower rate than the consensus was expecting. However, there were some mixed signals under the hood, with employment falling short of expectations but new order growth firming in the month.
Despite the slight miss, the details of the report (new orders and business activity) continue to show solid, and broader, growth in the services sector. For Fed watchers, the interesting tidbits are in the employment, supply deliveries and prices indexes. Employment growth continues to trend lower (posting a second contractionary reading in three months), while improving supplier delivery times and a deceleration in prices paid growth suggest improving supply side conditions. Improvements on the supply side, and a loosening in the labor market, suggest inflationary pressure could ease in the coming months.
