WASHINGTON (Reuters) – The U.S. services sector grew at a steady clip in February, with new orders and employment rising to more than one-year highs, suggesting the economy continued to expand in the first quarter.
The Institute for Supply Management (ISM) said on Friday that its non-manufacturing PMI dipped to 55.1 from a reading of 55.2 in January. A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the economy. The PMI is well above the 49.9 level, which the ISM says over time indicates growth in the overall economy.
Economists polled by Reuters had forecast the non-manufacturing PMI decreasing to 54.5.
The negligible drop in the PMI suggested that robust data on consumer spending and the labor market at the start of the year was not a fluke and that the economy was nowhere near recession, though risks of a downturn are rising. Signs of the economy’s resilience, however, could see the Federal Reserve maintaining its interest rate hiking campaign into summer.
The services sector is benefiting from consumers switching spending from goods, which are typically bought on credit. The ISM said on Wednesday that its manufacturing PMI contracted for a fourth straight month in February.
The ISM survey’s gauge of new orders received by services businesses increased to 62.6 last month, the highest level since November 2021, from 60.4 in January.
The services sector is now at the center of the fight against inflation as services prices tend to be stickier and less responsive to interest rate increases.
A measure of prices paid by services industries for inputs fell to 65.6 from 67.8 in January. Some economists view the ISM services prices paid gauge as a good predictor of the personal consumption expenditures (PCE) inflation.
The Fed, which has a 2% inflation target, tracks the PCE price indexes for monetary policy.
Last month’s moderate slowdown in prices paid by services businesses was despite a considerable improvement in supply. The survey’s measure of services industry supplier deliveries dropped to 47.6 from 50.0 in January. A reading below 50 indicates faster deliveries.
Hiring increased last month, with the survey’s measure of services industry employment rising to 54.0. That was the highest reading since December 2021 and was up from 50.0 in January. Labor market tightness is driving strong wage gains, contributing to keeping inflation elevated.
(Reporting by Lucia Mutikani)
