Service Industries Grow at Fastest Pace Since October 2015
American service companies expanded in February at the fastest rate since October 2015 amid stronger orders, signaling momentum in the economy鈥檚 biggest sector.
The Institute for Supply Management鈥檚 non-manufacturing index, which covers almost 90% of the economy, increased to 57.6 from 56.5 in January, the Tempe, Arizona-based group鈥檚 data showed March 3. Readings above 50 signal growth. The median forecast in a Bloomberg News survey called for the gauge to hold at the previous December level.
A measure of business activity climbed to the second-highest level since 2005, and order growth quickened, the report showed. Combined with the ISM鈥檚 latest reading on manufacturing, which grew at the fastest clip since August 2014, the services figures signal widespread optimism about the economy.
鈥淭here鈥檚 confidence out there, there is capital reinvestment happening, there鈥檚 expansion, there鈥檚 sales growth,鈥 Anthony Nieves, chairman of the ISM non-manufacturing survey, said on a conference call with reporters. 鈥淔or the most part, the majority have indicated that there鈥檚 this positive outlook on the economy and business moving forward.鈥
The surveys also corroborate recent comments from Federal Reserve policymakers that progress in the economy warrants a paring of monetary accommodation. U.S. central bankers are projected to raise the benchmark interest rate at their next meeting on March 14-15.
New York Fed President William Dudley, in an interview Feb. 28 on CNN International, said the case for tightening had become 鈥渁 lot more compelling鈥 in recent months. 鈥淭he risks to the outlook are now starting to tilt to the upside,鈥 he said.
Economists鈥 Projections
Estimates in the Bloomberg survey of economists for the ISM鈥檚 non-manufacturing index ranged from 54.5 to 59. The services survey covers an array of industries, including retail, health care, agriculture and construction.
Sixteen of 18 non-manufacturing industries reported growth in February, including mining, support services, and restaurants and hotels.
The group鈥檚 business activity index, which parallels the ISM鈥檚 factory production gauge, jumped to 63.6 from 60.3. The February reading was the second-highest since August 2005.
A measure of orders climbed to 61.2 in February, the strongest since August 2015, from 58.6. The gauge of backlogs increased by 4 points to 54, the largest monthly advance in two years. Exports also expanded, after shrinking in January.
An index of services employment increased in February, showing companies also continued to add to headcounts.
The latest ISM gauge of manufacturing increased by 1.7 points to 57.7 in February on the strongest reading for bookings in just over three years. The group鈥檚 production gauge was the strongest since March 2011.