February data signalled a marked slowdown in U.S. service sector output growth, but new business volumes increased at a similarly robust pace to that seen in the previous month. Survey respondents widely commented on disruptions of business activity from unusually bad weather and, as a result, service providers recorded a renewed increase in backlogs of work in February. Meanwhile, inflationary pressures continued to subside during the latest survey period, with input costs and output charges both rising at slower rates than in January.
Adjusted for seasonal influences, the final Markit U.S. Services PMI™ Business Activity Index dipped sharply to 53.3 in February, from 56.7 in the previous month.
Although the index was above the 50.0 no-change mark and signalled a solid pace of expansion, the latest reading was the lowest since October 2013.
The seasonally adjusted final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) posted 54.1 in February, down from 56.2 in January and the lowest reading since October 2013.
Weaker output growth led to a moderation in the rate of job creation across the service economy in February. The latest increase in staffing levels was the slowest since March 2013 and less marked than the average rate of employment growth recorded since the survey began almost four-and-a-half years ago.
Despite disruptions to business activity from adverse weather conditions in February, latest data indicated a robust expansion of incoming new work at service providers. Moreover, the rate of new business expansion remained broadly in line with the trend seen over the course of 2013.
Service providers are optimistic on balance about the prospects for business activity over the year ahead. That said, the degree of positive sentiment dipped from the three-year high recorded in January. Companies anticipating a rise in business activity generally cited expectations of improving underlying economic conditions over the next 12 months.
Meanwhile, latest data signalled that service sector input price inflation eased to its weakest since June 2013. Softer cost pressures in turn contributed to the weakest rise in average prices charged by service providers for five months.
ISM
The Institute of Supply Management’s nonmanufacturing purchasing managers’ index tumbled to 51.6 last month from 54.0 in January. Within the survey, some respondents cited weather as a negative factor in February. The hard winter weather has been blamed for tepid results in U.S. economic indicators over the last few months, although some economists worry longer-run obstacles, such as the end of extended jobless benefits, are also slowing the economy.
The biggest surprise in the ISM report was the employment index pointing to contraction for the first time in more than two years. The subcategory nose-dived to 47.5 in February from 56.4 in January.
Anthony Nieves, who oversees the ISM nonmanufacturing report, said the drop might be weather related or some “giveback” from the January employment reading, which was the highest since late 2010. (…)
However, new demand improved. The new orders index rose to 51.3 last month after 50.9 in January and 50.4 in December. The ISM inventory index was unchanged at 50.5. Meanwhile, non-manufacturers face easing cost pressures. The prices index fell to 53.7 from 57.1 in January and 54.7 in December. (WSJ)
The HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMI™ surveys, fell for the third month running to 51.1 in February, from 51.4 in the first month of 2014. That signalled the weakest growth in global emerging market output since last September, with the EMI also remaining well below its long-run trend level of 54.0.
