Service sectors strengthen globally, but slow in U.S

Service sectors around the globe mostly strengthened last month with Germany leading the way, although harsh winter weather put a damper on the massive U.S. non-manufacturing sector.

The news of global services expansion came in contrast to recent reads on manufacturing growth, which indicated a rebound in the U.S. while markets in Europe and Asia eased.

In the United States, growth in the services sector eased to its slowest pace since February 2010, according to the Institute for Supply Management.

Overall however, the data added to evidence the global economy was slowly recovering, though the strength was not consistent among regions or sectors.

Euro zone businesses enjoyed their fastest growth rate in non-manufacturing services in more than 2-1/2 years in February, boosted by Germany, though Britain's Purchasing Managers Index dipped but remained positive. In Asia, activity in China's services industry ticked up from a 2-1/2-year low in January, confirming separate data showing a pick-up in services even as manufacturing activity slows.

"The outlook for the year as a whole looks reasonably good and we now forecast for growth to be slightly stronger than last year," said Andrew Kenningham, senior global economist at Capital Economics.

The gulf between expansion in Germany, Europe's biggest economy, and the decline in No. 2 France has only been wider once in the 16-year history of the surveys.

Germany's composite PMI, bringing in services and manufacturing, soared to a 33-month high but France's fell further below the break-even mark for contraction, where it has languished for most of the past two years. Italy and Spain, the third and fourth biggest economies in the bloc, both had robust growth.

Still, Markit's final Eurozone Composite Purchasing Managers' Index (PMI), which gauges business activity across thousands of companies and is considered a good guide to economic health, was revised up to 53.3 from an initial flash reading of 52.7.

That was the eighth month above the 50 mark that denotes growth. Markit said the surveys suggest the euro zone economy was on course to grow 0.4-0.5 percent this quarter, more than the 0.3 percent growth predicted in a Reuters poll last month. It would be the fastest expansion in three years.

Wednesday's rise in China's services PMI was calculated by HSBC. It tallied with the official non-manufacturing PMI, released earlier in the week, which showed activity at a three-month high, and contrasted with two surveys that showed manufacturing activity slowed in the month.

While the U.S. ISM services index remained in expansion territory for a 50th straight month, the employment index contracted for the first time since December 2011.

Another read on services, from financial data firm Markit, also pointed to slowing growth in February, though Markit's final take on services was better than the preliminary read released last month.

Both the ISM and Markit reports pinned the weakness to unusually harsh weather in the month, rather than worsening fundamentals. Chris Williamson, chief economist at Markit, said the rate of growth was estimated to have held steady from January when excluding those that cited the weather as a reason for slack demand.

"There are therefore strong grounds to believe that the underlying health of the economy remains sound and that growth will pick up again," he said in a statement.

MORE HIRING

Services firms in the 18-member euro zone took on more workers for only the second time in more than two years while British companies hired staff at the fastest pace in the 16-year history of the survey.

Unemployment in the euro zone remained stuck near record highs in January but the British rate has fallen rapidly in the last six months.

The data will provide some cheer to both the European Central Bank and Bank of England which will announce their latest policy decisions on Thursday.

Both have slashed borrowing costs to record lows to spur growth and the BoE is widely expected to be the first major central bank to raise rates - albeit not until the second quarter of next year.

The BoE was forced to revamp its guidance last month a mere six months after it tied monetary policy to joblessness after unemployment fell to within a whisker of its 7 percent target.

Instead, it now focuses on 18 separate measures of data, including spare capacity in Britain's economy, business surveys and the number of hours worked, in order to gauge the right time to start raising rates.

"For the Bank of England, increasing evidence of a tightening labour market will further heat up the debate about when to start withdrawing monetary stimulus," said Christian Schulz, senior economist at Berenberg bank.

Copyright: Thomson Reuters 2014