ISM Services weakened slightly mainly due to a contraction in employment and faster deliveries. Prices remain a concern. The report hints at stagflation.
The February 2024 Services ISM® Report On Business® is an interesting bag of hot and cold this month. (Emphasis Mine)
Economic activity in the services sector expanded in February for the 14th consecutive month as the Services PMI® registered 52.6 percent, say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 44 of the last 45 months, with the lone contraction in December 2022.
The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management®.
“The Supplier Deliveries Index registered 48.9 percent, 3.5 percentage points lower than the 52.4 percent recorded in January. The index returned to contraction — indicating that supplier delivery performance was faster after one month in expansion (or ‘slower’) territory. In the last 12 months, the average reading of 48.7 percent (with a low of 45.8 in March) reflects the fastest supplier delivery performance since December 2022, when the index registered 48.5 percent.
Supplier Deliveries is the only ISM® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.
“Fourteen industries reported growth in February. The Services PMI®, by being above 50 percent for the 14th consecutive month (after a single month of contraction in December 2022 and a prior 30-month period of expansion), continues to indicate sustained growth — but at a slightly slower rate in February — for the sector.”
Nieves continues, “The slight decrease in the rate of growth in February is a result of faster supplier deliveries and the contraction in the Employment Index. The majority of respondents are mostly positive about business conditions. Respondents remain concerned about inflation, employment and ongoing geopolitical conflicts.”
Respondent Comments (Emphasis Mine)
- “Red Sea issues have not yet impacted our purchasing conditions, but we continue to monitor the situation very closely.” [Accommodation & Food Services]
- “Business remains strong across the U.S. industrial construction sector. Construction materials levels have returned to pre-coronavirus pandemic levels, and the outlook for 2024 is strong.” [Construction]
- “Continued inflationary pressures and labor price increases are challenging, but we continue to push forward.” [Health Care & Social Assistance]
- “Employers remain cautious about hiring direct employees and are considering utilizing contract labor to cover project and interim work demands as concerns about the economy continue to be front of mind.” [Management of Companies & Support Services]
- “Commodity prices have dropped in the last quarter, although they have been range-bound over the last year. Production continues steady increase.” [Mining]
- “We are experiencing stabilization from external economic influences. The past 12 months brought significant external shifts that resulted in fairly sizable changes to business objectives and financials. Now that we have absorbed changes and restructured strategic plans, we are on a course for a successful 2024.” [Professional, Scientific & Technical Services]
- “Economy seems unsettled. Inflationary fears persist, yet some things are settling down. High demand for services, although inquiries from contractors for opportunities seem to be only inching upward. Layoffs in many large industries, but many businesses are desperate for workers. Lots of contradictions.” [Public Administration]
- “Business is good. Inflation is under control and trending downward. Pricing of commodities is going up at a slower pace. Manufacturing is good, with no sign of any change in the near future.” [Retail Trade]
- “Labor continues to be in highest demand. Finding qualified and available crews and administrative staff (is still) difficult. Brass fittings and electrical equipment lead times are still very long.” [Utilities]
- “Moderate increases in business activity so far. Improved supplier fill rates and steady pricing have resulted in increased levels of restocking as businesses prepare for spring and summer selling seasons.” [Wholesale Trade]
Key Points
Price inflation is notable. Prices are up 81 consecutive months. 58.6 percent of respondents say prices rose in February, That’s down from a whopping 64 percent last month.
Business activity rose for 45 straight months. But some cracks have appeared in employment and deliveries.
The backlog of orders is barely above contraction which confirms faster deliveries.
With faster deliveries and reduced backlogs, employment rates to be weak, which it is. Nonetheless, some industries are having difficulty finding skilled workers.
Hints of Stagflation
The report is a mixed bag that hints at stagflation. It does not suggest imminent rate cuts by the Fed.
“Pent-Up Exuberance”
Also see The Atlanta Fed on “Pent-Up Exuberance” and Threat of More Inflation
Atlanta Fed President, Raphael Bostic, is concerned about another round of inflation caused by “Pent-Up Exuberance”.
Hello, Mish. I would like your comment about last Mchael Pettis’ article in Carnegieendowment.org about trade imbalances. I think is very good.
He says “if the United States doesn’t control its capital account, it cannot control the gap between U.S. investment and U.S. savings, which in turn means it can control neither its trade account nor its overall savings rates.”
He defends capital controls, better than tariffs.
in general I agree with pettis. will have to read the article
I think this is incorrect “With faster deliveries and reduced backlogs”
The backlogs data is >50 which means backlogs are still increasing. They’re just increasing more slowly than before. Perhaps backlogs will peak out but since new orders accelerated, that seems unlikely.
Also, while the data are a mix of red and green in terms of growth, nearly all the data are consistent with “continuing inflation”.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, seems to shre the same sentiment regarding inflationary concerns, saying, “A concern is that alongside this faster growth, the survey has seen price pressures revive. Although average prices are still rising at one of the slowest rates seen over the past four years, the rate of inflation picked up for goods and services alike in February to hint at some broad-based firming of price pressures that could worry policymakers about cutting interest rates too early.”
As I commented on the Atlanta Fed post, inflationary pressures are increasing and have been for awhile now in the CPI, PPI and PCE reports on a MoM basis and on a 3 and 6 month annualized basis.
I trust next weeks CPI and PPI reports will show this trending continuing and energy prices are going to so more acceleration to the upside too.
The inflationary depression is proceeding just as planned.
Free ice cream if you vote for Biden!
This area is the key to inflation. The US could have absurd GDP/debt ratios and spend trillions for interest but none of that matters as long as they don’t dump $ into the wallets of ordinary people – as they did with Covid. The same goes for bank failures, no matter how big they are (deflationary actually)
Ah, but watch services and productivity. Employees ghosting jobs, smoking weed, or just being unemployable ( or just being Boeing). Then prices get bid up for whatever remains. So, not enough nurses, aircraft mechanics, – anything that Makes My Eyes Glaze Over. Russia and China will be blamed somehow and of course “racism” or whatever is trendy. That’s how stagflation will happen.
There is both supply-side and demand-side inflation. Powell is doing an exceptionally good job at keeping the means-of-payment money supply in check. We will see the fruits of those efforts in the last half of the year.
Unbeknownst to the FED’s Ph.Ds., the distributed lag effect of money flows, the volume and velocity of money, are mathematical constants. There is no “Fool in the Shower”.
I’d like to see evidence that monetary lag effects “are mathematical constants”. It seems to me that most lags are situation-dependent (that is, variable not constant) depending on prevailing circumstances.
I’d also like to see evidence for “exceptionally good job at keeping the means-of-payment money supply in check”. From what I see, means-of-payment availability is still far too loose.
you and Powell definitely are racket scientists !
Stagflation isn’t the right word. By definition stagflation has high unemployment and that’s not going to happen with so many boomers retiring. We will have high inflation.
I think we will have bidding wars for top talent from big firms with lots of money soon enough. The economy is growing in bits and pieces such as AI, cloud…Mag 7 and not growing in other areas (auto sales, Russell 2000 / small businesses).
It’s a ‘bifurcated growflation’ economy not stagflation. There will be amplification of winners and losers which means the losers & whiners will howl louder and the winners will get richer.
All we have to do is pick the right money train to ROAD along the journey.
“Strong 2024”
“Increasing”
“Indicates sustained growth”
“Stabilized and strong”
“Outlook for 2024 is strong”
“Steady increase”
“Successful 2024”
The report verbiage sounds like a goldilocks economy. Red hot.
Major/massive disconnect somewhere . Maybe it’s the real 8% inflation instead of the bullshit 3% or sub 3% the liars are spouting publicly
Employment down and prices down from huge surge
And when TSHTF for real later this year those will collapse
By far the biggest news of the day though is Victoria Nuland resigning from State Department
She is the architect of the US War on Russia
Does this mean they are getting ready to dump Biden?
Same day multiple stories appear about Killary getting back in the race?
Maybe that is why Bitcoin and Gold are surging
Big connected players know something big is about to happen
Though 30 year up but not flying
Ammo has way more value than the tulip bitfraud
I have over 200 jugs of whiskey
Killery clearly stated in an article I read that Biden is the candidate, and voters need to look past his age.