The service sector continued its strong growth in February on the heels of robust new orders, business activity and improvement in inventories.
The U.S. service purchasing managers index registered at 55.1, only slightly lower than the 55.2 in January, according data released Friday by the Institute for Supply Management. An index above 49.9 generally indicates economic expansion.
We expect the sector to continue to grow but at a slower pace in the coming months because there is still room for services spending and demand to catch up with its pre-pandemic trend.
February’s strong service data helps show that the sharp rebound in January was not a fluke, while at the same time adding more pressure on service inflation, which has been the Federal Reserve’s top concern.
The prices paid subindex inched down to 65.6 from 67.8, suggesting that while the price pressure has eased from its peak in 2021, it remains elevated.
With demand bouncing back, service-providing companies increased their hiring in February as the employment subindex rose to 54 from 50 in January.
Together with recent data from the manufacturing sector and near historically low jobless claims, we should expect another hot jobs report when it comes out next Friday.
Inside the report, backlogs of orders continued to grow, reaching 52.8, while inventory sentiment remained optimistic, expanding for the third month in a row.
