The latest report from the Institute for Supply Management (ISM) reveals significant expansion in America's non-manufacturing sector, with key indicators reaching multi-year highs. This robust performance suggests continued economic momentum, though questions remain about its sustainability amid global uncertainties.
Understanding the Non-Manufacturing Sector
Often overshadowed by manufacturing data, the non-manufacturing sector actually represents the backbone of the modern U.S. economy. Encompassing services ranging from healthcare and education to hospitality and finance, this sector accounts for approximately 80% of U.S. economic output and employment.
The distinction between manufacturing and non-manufacturing parallels the difference between tangible goods and intangible services. While manufacturing produces physical products like automobiles and electronics, non-manufacturing delivers experiences, expertise, and solutions that power daily life.
Key Findings from the February Report
The Non-Manufacturing Index (NMI) climbed to 57.6 in February, marking its highest level since October 2015 and signaling the 86th consecutive month of expansion. More significantly, the reading exceeded the 12-month average by 2.2%, suggesting accelerating growth.
Core Indicators Show Broad Strength
- Business Activity/Production: Jumped 3.3% to 60.3, reaching its highest point since February 2011
- New Orders: Increased 2.6% to 61.2, the strongest reading since August 2015
- Employment: Rose 0.5% to 55.2, continuing a three-year growth streak
- Supplier Deliveries: At 52.0, indicates slightly slower delivery times—often a sign of increased demand
Sector-Specific Performance
Growth spanned nearly all service industries, with particularly strong showings in:
- Accommodation and food services
- Healthcare and social assistance
- Professional, scientific, and technical services
- Finance and insurance
The broad-based expansion reflects strengthening consumer confidence and discretionary spending. Only real estate and information services reported contraction, likely due to sector-specific cyclical factors.
Business Sentiment and Economic Implications
ISM Non-Manufacturing Business Survey Committee Chair Tony Nieves noted that optimism extends beyond current performance metrics. "This confidence stems from positive business dialogue about potential policy changes, not just present results," he observed.
The hospitality sector's strong rebound—traditionally vulnerable during economic downturns—particularly underscores this optimism. As Nieves remarked, "When airlines and restaurants thrive, the economy thrives."
Complementary Manufacturing Data
The non-manufacturing strength aligns with recent manufacturing gains, though the sectors exhibit different cyclical patterns. Manufacturing typically leads both declines and recoveries, while services demonstrate greater resilience due to their diversified nature.
"Non-manufacturing acts like a diversified investment portfolio," Nieves explained. "Its varied components buffer against shocks that might disproportionately affect goods-producing industries."
Potential Challenges Ahead
While the report paints an optimistic picture, several factors could impact future growth:
- Global economic headwinds
- Trade policy uncertainties
- Federal Reserve interest rate decisions
- Supply chain constraints (evidenced by rising backlogs and inventory levels)
Future Trends in Services
The sector appears poised for transformation through several key developments:
Digital Transformation
Cloud computing and mobile platforms are revolutionizing service delivery in education, healthcare, and professional services.
AI Integration
Artificial intelligence applications—from diagnostic tools to customer service—are enhancing efficiency and personalization.
Experience Economy
Consumers increasingly value customized experiences over standardized services, driving innovation in hospitality and retail.
Conclusion
The February ISM report confirms the non-manufacturing sector's role as America's economic engine. While the current expansion appears sustainable, its duration will depend on navigating global challenges and technological disruptions. For now, the data suggests services will continue driving U.S. economic growth in the foreseeable future.