Briefing.com: Ism Services

Updated: 03-Mar-10 10:39 ET

February ISM Services

Updated: 03-Mar-10 10:39 ET

Highlights

he ISM Non-Manufacturing Index surged from 50.5 in January to 53.0 in February. The index is now at its highest level since October 2007.
The consensus expected a more modest increase to 51.0.

Key Factors

All of the components in the index strengthened in February.
The business activity index increased from 52.2 to 54.8, and the new orders index rose from 54.7 to 55.0.
The prices paid index declined from 61.2 to 60.4 and suggests increased profit margin expectations in the near future.
Even though every component in the index strengthened, there are still some noticeable problems within the sector.
While the rate of decline in backlogs lessoned, as the index increased from 45.5 to 46.0, it is a little discouraging to not see growth in this area (a number above 50). Businesses are still producing as orders come in, but if demand suddenly stalls for a month, the activity index could plummet.
The employment index remains stuck in a contraction cycle as the index increased from 44.6 to 48.0. Given the positive payroll numbers over the last couple of months in the service sector by both the BLS and ADP employment reports, we expected the index to jump past 50 this month.

Big Picture

The market generally doesn't pay much attention to the services index because the service sector is less cyclical than the manufacturing sector. During the current recession, the service index held steady around 50.0% through September 2009 before bottoming at 37.4% in November 2008. Since then, the service index has slowly risen back and finally broke the 50.0% barrier. In contrast, the manufacturing index, with the exception of January 2009, stayed below 50% from December 2008 through July 2009 and bottomed at 32.9% in December 2008.