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U.S. Service Sector Expands At Fastest Rate In A Year

U.S. Service Sector Expands At Fastest Rate In A Year

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 Tuesday, with the index of activity in the sector reaching its highest level in a year.

The ISM said its non-manufacturing index crept up to 56.0 in February from 55.2 in January, with a reading above 50 indicating growth in the service sector. The increase by the index came as a surprise to economists, who had expected it to dip to 55.0.

With the unexpected increase, the non-manufacturing index rose to its highest level since reaching 56.1 in February of 2012.

Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, said, "According to the NMI, 13 non-manufacturing industries reported growth in February."

"The majority of respondents' comments reflect a growing optimism about the trend of the economy and overall business conditions," he added.

New orders saw a notable acceleration in the pace of growth, with the new orders index climbing to 58.2 in February from 54.4 in January.

The business activity index showed a more modest monthly increase, edging up to 56.9 in February from 56.4 in January.

The inventories index jumped to 54.0 in February from 47.0 in January, indicating an increase in inventories compared to the contraction seen in the previous month. The backlog of orders index also rose to 54.5 from 49.0.

Meanwhile, the employment index dipped to 57.2 in February from 57.5 in January, although the reading above 50 still pointed to the seventh consecutive month of job growth in the service sector.

The report also showed that the prices index climbed to 61.7 in February from 58.0 in January, indicating an acceleration in the pace of price growth.

Commenting on the report, James Knightley, senior economist at ING, said, "When combined with the strong manufacturing ISM from last Friday it suggests that the economy was performing well in the lead up to sequestration."

"Austerity will be a headwind, but with the economy adding jobs and order books looking in good shape the U.S. economy will continue to outperform other major developed market economies," he added.

Last Friday, the ISM released a separate report showing that activity in the U.S. manufacturing sector expanded for the third consecutive month in February.

The ISM said its purchasing managers index rose to 54.2 in February from 53.1 in January, with a reading above 50 indicating growth in the manufacturing sector. Economists had been expecting the index to edge down to a reading of 52.8.

With the unexpected increase, the purchasing managers index rose to its highest level since reaching 55.8 in June of 2011.

by RTT Staff Writer

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