After three straight months of weaker than expected headline reports, today’s ISM Services report for the month of February did see a sequential decline but still managed to surprise to the upside. While economists were forecasting the headline index to come in at a level of 53.1, the actual reading came in at 53.4. On a combined basis and accounting for each sector’s share in the overall economy, the combined February ISM came in at 52.9 which was unchanged from January.
The table below breaks down February’s ISM Services report by each of the index’s components and shows their m/m and y/y changes. On a m/m basis, breadth was mixed. Both Export and Import Orders surged in February while Business Activity also saw a healthy jump rising from 53.9 to 57.8 and erasing much of last month’s plunge. On the downside, the biggest decline this month was in Employment which fell from 52.1 down to 49.7. That’s the first contractionary reading for employment since February 2014. That will undoubtedly cause some concerns heading into tomorrow’s employment report, but we wouldn’t read too much into one month. Also, in the commodities survey of the report, the only commodity that was reported to be in short supply was labor (5th month in a row), so that helps to offset the weak reading. Finally, on a y/y basis, the majority of components declined this month with Export and Import Orders showing the only increases.