U.S. Service Sector Growth Unexpectedly Shows Continued Slowdown In February

Economy

U.S. service sector activity unexpectedly grew at a slower rate in the month of February, according to a report released by the Institute for Supply Management on Thursday.

The ISM said its services PMI fell to 56.5 in February from 59.9 in January. While a reading above 50 still indicates growth in the service sector, economists had expected the index to inch up to 61.0.

The services PMI decreased for the third straight month after reaching a record high of 68.4 in November of 2021.

The unexpected drop by the headline index came as the new orders index tumbled to 56.1 in February from 61.7 in January and the business activity index slumped to 55.1 from 59.9.

The employment index also fell to 48.4 in February from 52.3 in January, indicating a pullback in employment in the service sector.

“Although there was a pullback for most of the indexes comprising the Services PMI in February, growth continues for the services sector, which has expanded for all but two of the last 145 months,” said Anthony Nieves, Chair of the ISM Services Business Survey Committee.

“Respondents continue to be impacted by supply chain disruptions, capacity constraints, inflation, logistical challenges and labor shortages,” he added. “These conditions have affected the ability of panelists’ businesses to meet demand, leading to a cooling in business activity and economic growth.”

The report showed the supplier deliveries index inched up to 66.2 in February from 65.7 in January, with a reading above 50 indicating slower deliveries, while the inventories index rose to 50.8 from 49.4.

On the inflation front, the prices index crept up to 83.2 in February from 82.3 in January, indicating a modest acceleration in the pace of price growth.

The ISM released a separate report on Tuesday showing a modest acceleration in the pace of growth in U.S. manufacturing activity in the month of February.

The manufacturing PMI ticked up to 58.6 in February from 57.6 in January, while economists had expected the index to inch up to 58.0.

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