The Institute for Supply Management (ISM) released a report on Tuesday indicating that growth in the U.S. service sector decelerated slightly more than projected in February. The Services Purchasing Managers' Index (PMI), according to the ISM, dropped to 52.6 in February, down from 53.4 in January. Despite growth still being represented by a reading above 50, economists had predicted a mere dip to 53.0.
The larger-than-anticipated dip in the headline index was partially due to a downturn in employment, as recorded by the employment index dropping to 48.0 in February from 50.5 in January. Performance of supplier deliveries also deteriorated, falling to 48.9 in February from 52.4 in January, signifying a quicker delivery rate after a month of slower activity.
According to Anthony Nieves, Chair of the ISM Services Business Survey Committee, the decrease in growth rate in February is a consequence of more rapid supplier deliveries and a contraction in the employment index. He added that majority of respondents remain generally positive about the business conditions. However, concerns about inflation, employment, and ongoing geopolitical conflicts are still present.
Interestingly, the report showed the business activity index increased to 57.2 in February from 55.8 in January, and the new orders index improved to 56.1 from 55.0. The prices index, however, dropped to 58.6 in February from 64.0 in January, indicating a deceleration in price growth.
Earlier, on Friday, the ISM released another report indicating an unexpected contraction at an accelerated rate in U.S. manufacturing activity in February. The Manufacturing PMI dipped to 47.8 in February, down from 49.1 in January, where a reading below 50 indicates contraction. Economists had forecasted the index to edge up slightly to 49.5.
