U.S. Services-Sector Activity Grew Slower in February -- 2nd Update

03/05/18 12:13 PM EST
By Sharon Nunn 

WASHINGTON -- Growth across U.S. service industries continued at a solid pace in February, despite the largest drop in an employment gauge in a decade.

The Institute for Supply Management on Monday said its nonmanufacturing index fell to 59.5 in February. A reading above 50 indicates activity is expanding across service and other industries, while a number below 50 signals contraction. Economists surveyed by The Wall Street Journal had expected a lower February reading of 59.0.

A sharp 6.6 percentage-point decline in the employment subindex, the heftiest drop since the middle of the last recession, drove the overall reading lower.

January's employment reading hit an all-time high, leading many analysts to argue February's large employment index decline is pullback from an unstainable peak and isn't likely to signal a poor jobs report release this Friday.

"The correlation isn't very close," said Stephen Stanley, chief economist at Amherst Pierpont Securities. "If January's [employment] index were closely tracking the jobs report, we would've seen a blowout jobs number because it was the highest in the history of the survey."

Still, the nonmanufacturing index remains at an elevated level despite the employment drop, a sign of health in the broader economy. The business activity and production index grew 3.0 percentage points, and the new-orders index also grew, increasing 2.1 points.

The prices index declined 0.9 percentage point, signaling prices are now growing at a slower pace.

Some 16 sectors reported growth during February, led by educational services and transportation and warehousing, while two sectors -- arts, entertainment and recreation and accommodation and food services -- reported contraction.

The overall U.S. economy is experiencing one of its most robust bouts of economic growth in recent years, with output in 2017 growing at its strongest annual pace in three years, buoyed by consumer and business spending.

Another ISM index that tracks the manufacturing sector surged in February to the highest level since 2004 as raw-materials prices rose quickly, the group said last Thursday.

Write to Sharon Nunn at sharon.nunn@wsj.com


(END) Dow Jones Newswires

March 05, 2018 12:13 ET (17:13 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.