US services activity cools less than expected in Feb: Survey

WASHINGTON: The US services sector remained resilient last month, helped by healthy demand and as employment picked up, according to survey data released Friday. The Institute for Supply Management’s (ISM) services index, which measures the health of a major sector of the American economy, logged a reading of 55.1 percent in February, down slightly from a month earlier.

A figure above 50 signals the services sector is expanding, and the latest number was higher than analysts expected. The indicator, marking the second straight month of growth, is also the latest sign of ongoing demand in the services industry while the labor market remains hotter than policymakers hope.

The continued growth of the dominant services sector adds to the positive economic news that has been complicating attempts by the Federal Reserve to bring inflation back under control.

February’s reading was driven by growth in more than a dozen industries including agriculture and real estate, said the ISM report. Respondents to the survey “indicated that they are mostly positive about business conditions,” said ISM survey chair Anthony Nieves.

With February’s data, the services sector has grown in 32 out of the last 33 months. Fed Governor Christopher Waller warned on Thursday that the central bank may have to raise rates even higher than previously predicted if “data reports continue to come in too hot.”

Waller pointed to an unexpected recent rise in job gains, and revised figures indicating that inflation slowed less than previously reported. “Overall, the survey is signaling ongoing expansion in service sector activity, not yet responding to more restrictive monetary policy,” said Rubeela Farooqi, chief US economist at research consultancy High Frequency Economics.

The Fed has been raising rates consistently, she noted, referring to the central bank’s eight consecutive interest rate hikes over the past 12 months. The manufacturing sector, which forms a much smaller part of the American economy, continued to contract last month, according to data released by ISM.

The US Federal Reserve may have to raise interest rates to a higher level than earlier anticipated if “data reports continue to come in too hot,” Fed Governor Christopher Waller warned Thursday.

This comes as data released in February showed that job gains surged unexpectedly, while revised figures indicated that inflation slowed less than previously reported, he said in prepared remarks at the Mid-Size Bank Coalition of America. “Although inflation has been coming down since the middle of last year, the recent data indicate that we haven’t made as much progress as we thought,” said Waller.

Recent numbers underscore the view “that the fight to bring inflation down to our two percent target will be slower and longer than many had expected just a month or two ago,” he added.

Among other issues, policymakers have been concerned about wage growth, as it feeds into inflation via labor costs. If job creation falls to “a level consistent with the downward trajectory seen late last year” and inflation pulls back significantly, Waller said, he would endorse raising the federal funds rate to a target range between 5.1 and 5.4 percent.

In December, Fed officials pegged the median rate at 5.1 percent this year, a figure already higher than earlier expected. If reports “continue to come in too hot,” the range will have to be raised even more this year, Waller said. This is “to ensure that we do not lose the momentum that was in place before the data for January were released,” he added. – AFP


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