U.S. Service Sector Growth Unexpectedly Slows In February

After reporting U.S. service sector activity at a nearly two-year high in the previous month, the Institute for Supply Management released a report on Wednesday showing the pace of growth in the sector slowed in the month of February.

The ISM said its services PMI dropped to 55.3 in February from 58.7 in January, although a reading above 50 still indicates growth in the sector. Economists had expected the index to come in unchanged.

The pullback by the services PMI came after the index reached its highest level since hitting 58.8 in February of 2019.

The decrease by the headline index was partly due to a slowdown in the pace of growth in new orders, as the new orders index tumbled to 51.9 in February from 61.8 in January.

The business activity index also slid to 55.5 in February from 59.9 in January, while the employment index fell to 52.7 from 55.2.

On the other hand, the report said the prices index spiked to 71.8 in February from 64.2 in January, indicating a significant acceleration in the pace of price growth.

Despite the slowdown in service sector growth in February, Oren Klachkin, Lead U.S. Economist at Oxford Economics, said the sector “is locked and loaded for a summer surge.”

“Encouraging Covid statistics, accelerating vaccine distribution, and the Biden administration’s push to make vaccines available to every adult American by the end of May offer hope the health crisis’ end is nearing,” Klachkin said.

“Looking ahead, better health conditions will allow deeply disrupted services to reopen and economic activity to fully normalize,” he added. “The stage is set for a more robust recovery, with the American Rescue Plan set to deliver a fiscal impulse that lifts GDP growth to its highest in nearly 40 years.”

The ISM released a separate report on Monday showing U.S. manufacturing activity grew at an accelerated rate in the month of February.

The manufacturing PMI rose to 60.8 in February from 58.7 in January. Economists had expected the index to inch up to 58.8.

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