ISM: Service sector growth accelerates in February

Growth in service sectorGrowth in the U.S. service?sector?accelerated in February to its fastest pace in more than two years, but jobs remained hard to find.

Gains in the U.S. economy have so far been led by a rebound in manufacturing, as companies slowed their inventory drawdowns and exports rose.

The service?sector, which accounts for the vast majority of U.S. jobs, has seen much slower, bumpier improvement as layoffs and tight credit weigh on consumers. Its health is crucial to a sustained recovery from the deep recession that began in December 2007.

The Institute for Supply Management said Wednesday its index measuring service industry activity rose to 53 in February from 50.5 in January.

Economists polled by Thomson Reuters had expected a smaller increase to 51.

Any level above 50 signals growth. The 53 reading is the highest since January 2008, when ISM revised how it measured the service?sector.

The service?sector is important it accounts for 80 percent of U.S. jobs excluding farmworkers. That entails jobs in areas like health care, retailing and financial services.

“The increase is particularly encouraging given the severe winter storms last month that will have affected the retail and construction sectors,” said Paul Ashworth of Capital Economics. Still, he said February’s reading was consistent with economic output growing only about 2 percent a year ? “a disappointing recovery after such a severe recession.”

In the fourth quarter of last year, the economy grew at a 5.9 percent annual pace.

Business activity and new orders both grew faster in February, ISM said, despite harsh winter weather.
Still, if nervous consumers cut back on spending, the service?sector will resume its decline, hindering hiring, Ian Shepherdson of High Frequency Economics said in a research note.

Meanwhile, ISM’s measure of employment improved to 48.6, the highest level since April. That’s still the 26th consecutive month of shrinking jobs, but it is approaching the level where companies could begin to hire again.
Private reports on jobs showed improvement ahead of the government’s release of employment data Friday.

The ADP payrolls survey said private-sector employers cut 20,000 jobs last month, but that was better than the 60,000 jobs lost in January.

Outplacement firm Challenger, Gray & Christmas, meanwhile, said companies announced about 42,000 layoffs in February, the smallest monthly jobs loss since June 2006.

Economists are predicting the Labor Department will report on Friday that the unemployment rate edged up to 9.8 percent last month and that employers cut 50,000 jobs.

Meanwhile, Switzerland-based staffing company Adecco SA said conditions were improving in North America.

Of the 18 industries ISM surveys, nine reported growth in February, led by information, arts and entertainment and transportation and warehousing. Eight industries shrank, led by educational services, health care, and management and support services. Agriculture held steady.

Source: The Associated Press.