The Institute for Supply Management's (
ISM
) Non-Manufacturing or Service Index increased to 57.3 from 56.8 in
January. That was significantly above the consensus
expectations which were looking for a drop to 56.0. It was
also the highest level of the index in a year. It is
also in stark contrast to the ISM Manufacturing Index (released
last week) which unexpectedly fell to 52.4 from 54.1. Both
indexes are "magic 50" indexes where any reading above 50 means
expansion and anything below means contraction. Thus the
service sector of the economy is showing robust growth, and that
growth accelerated in February versus January, while the
manufacturing side of the economy is expanding at a slower pace,
and that pace of growth is slowing down.
The Service index is made up of ten sub-indexes, six of which
increased this month and four decreased. Nine of the ten are
above the magic 50 level. There are four of the sub-indexes
that I consider to be particularly significant, all of which are
comfortably above the 50 level and three of which increased this
month.
The best measure of overall business activity in February is the
Business activity index. It rose to a very robust 62.6, a
gain of 3.1 points. As business complete projects, it comes
out of their backlog, which is the best indicator of activity in
the near term future. The Order Backlog sub index increased
3.5 points to 53.0. As the backlog is worked down it has to
be replenished with new orders. The new orders index thus
gives s a good glimpse of future business activity. It
increased 1.8 points on the month to 61.2.
While employment has been growing, the unemployment rate still
remains at a very high 8.3%. Thus the Employment sub index
takes on a special importance. It was the only one of the
four key sub-indexes to fall, dropping 1.7 points but to a still
strong 55.7.
This was a very positive report. While the Service Index
does not have the long history that the Manufacturing Index has, it
covers a much larger part of the economy. This report is key
evidence that the economy is on the right track.
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