The ISM Services Index (top graph) dropped to a reading of 56.5 in February versus economists’ expectations for an increase to 60.9. The Index now stands at a 12-month low but remains soundly in expansion territory.
Earlier this week we noted that demand strengthened in the manufacturing sector last month, yet the service sector saw demand soften as the New Orders Index (middle graph) fell significantly. However, like the manufacturing sector, wages and labor remain a key constraint and are contributing to the Prices Paid Index (bottom graph) nearing the highest level in its history. To quote a respondent from this month’s report: “Severe labor shortages are expected well into 2022. Corporations need to increase wages and salaries to attract talent and get work done. Faster wage growth is expected to lead to increased inflation.”
