U.S. Service Sector Growth Unexpectedly Inches Higher In February

(RTTNews) - Activity in the U.S. service sector unexpectedly grew at a slightly faster rate in the month of February, according to a report released by the Institute for Supply Management on Wednesday.

The ISM said its non-manufacturing index inched up to 56.9 in February from 56.7 in January, with a reading above 50 indicating an expansion in service sector activity.

The modest uptick by the index came as a surprise to economists, who had expected the index to edge down to 56.5.

A notable rebound by the reading on employment contributed to the increase by the headline index, with the employment index jumping to 56.4 in February from 51.6 in January.

On the other hand, the business activity index dropped to 59.4 in February from 61.5 in January and the new orders index slumped to 56.7 from 59.5.

Peter Boockvar, managing director at the Lindsey Group, said, "Bottom line, while the headline figure was steady state, the internals were mixed as more industries saw growth compared to the prior month but new orders fell to near a one year low."

"We still believe the U.S. economy remains in the 2.25-2.5% range but because of the tightening labor market and signs of quicker wage growth the Fed will be raising rates in June," he added.

The report also showed that the prices index climbed to 49.7 in February from 45.5 in January, although the reading below 50 indicates a slight contraction.

On Monday, the ISM released a separate report showing a slowdown in the pace of growth in U.S. manufacturing activity in the month of February.

The ISM's index of activity in the manufacturing sector fell to 52.9 in February from 53.5 in January, while economists had forecast a reading of 53.0.

Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee, said, "Comments from the panel express a growing level of concern over the West Coast dock slowdown, negatively impacting exports and imports and requiring workarounds and added costs."