Just two days after the Institute for Supply Management (ISM) had reported a surprisingly strong report on manufacturing activity for the month of February, that same trade group just issued data that showed a surprisingly weak performance by the companion non-manufacturing, or services, sector during that same time span.
Specifically, the ISM indicated that this economic category that covers consumer activity, which accounts for more than two-thirds of aggregate GDP, came in at just 51.6 last month. Although that was still above the 50.0 dividing line between growth in this category and contraction, the result was lower than the 54.0 reading in January and the expected rate of activity (53.5) in February.
Moreover, several of the key components in this report showed notable month-to-month deterioration. On point, employment fell from January's 56.4 to last month's 47.5. Meanwhile, slowing its rate of growth, but still gaining, were prices, which came in at 53.7 down from 57.1. New export orders, however, dropped further, going from 49.0 to 47.5. Also, business activity slowed from 56.3 to 54.6. Bucking the generally lower trend, though, were backlogs, which jumped from 49.0 to 52.0, and new orders, which edged up from 50.9 to 51.3.
All told, this was the weakest showing in non-manufacturing in more than a year, with the 12-month average for this sector being 54.3, and the range coming in at last month's 51.6 to August's 57.9.
Taken as a whole, this was a disquieting report--especially if looked at in isolation. However, as with most issuances, it is likely that the long and difficult winter has played a role. In fact, some industry respondents, in citing the weaker showing last month, noted that the weather had played a role.
Individually, we saw such comments as "the economy is still plugging along''; “cold winter weather has had a major effect on us''; and "winter weather is slowing down our projects.''
In sum, we probably can give this area of the economy a pass for one more month, as the weather has clearly been a factor. In the meantime, should the expected warm-up start to take hold next week as the weather forecasts suggest, we could well get a more meaningful picture of the actual health of the services sector in early April. At that time, we will, presumably, be in a better position to judge the health of this area.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.