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US Service Economy Improves in February

H.S. Borji
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The US service economy improved for a second consecutive month in February, a sign the world’s biggest economy was regaining momentum following a temporary soft patch.

Markit Group’s preliminary estimate of US service activity rose 2.8 percentage points to 57.0 in February, a four-month high. The reading was well above forecasts calling for a slight decrease to 54.1. A reading above 50 signifies expansion in service activity, whereas a reading below that level indicates contraction.

The PMI composite – a gauge of service and manufacturing activity – increased to 56.8 from 54.4. Last week Markit said manufacturing activity gained momentum in February, as production output rose at the fastest pace in four months. The flash manufacturing PMI estimate rose to 54.3 in February, from 53.9 the previous month.

Manufacturing activity had weakened in January, as new business growth slowed to a one-year low.

The February flash estimates represents 85 percent of total survey responses. Markit Group will post its final services PMI estimate on March 4.

February was the sixteenth consecutive month service sector activity had increased, with the rate of new business growth rebounding from January’s survey-record low. Businesses highlighted an improving domestic economy and rising client demand, which outweighed inclement weather conditions in some parts of the country.

Higher work volumes contributed to higher work backlogs, which led to another month of sustained job creation. The latest uptick in employment was the fastest since November, Markit data showed.

US employers added 257,000 payrolls in January, rounding out the strongest three-month period of job creation since the 1990s. Employers added an average of 336,000 nonfarm payrolls between November and January, the Labor Department reported earlier this month. Latest indicators suggest employers added more than 200,000 jobs in February for the thirteenth consecutive month.

Businesses remained upbeat about their prospects, although the rate of optimism eased to a four-month low.

“Stronger growth of service sector activity in February puts a June Fed rate rise firmly back on the table,” said Markit chief economist Chris Williamson in a press release.

He added, “Alongside the upturn signalled by the sister ‘flash’ manufacturing PMI survey, the improved performance of the service sector in February means the economy looks to be enjoying yet another spell of robust growth in the first quarter. The two PMI surveys are so far running at a level consistent with at least 3.0% annualised GDP growth. While the overall rate of business expansion has cooled from the surging pace seen in the middle of last year, growth remains buoyant and, importantly, strong enough to drive yet another month of impressive job creation.”

The US economy posted its strongest six-month period of growth in more than a decade in the second and third quarters of 2014. Growth slowed considerably in the fourth quarter, as the economy expanded 2.6 percent annually, according to preliminary forecasts. The Commerce Department on Friday is expected to revise down its estimate of fourth quarter growth to 2.1 percent annually.

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