U.S. Service Industries Grow Near Fastest Pace in a Decade

(Bloomberg) -- U.S. service industries expanded in February near the fastest pace in at least a decade, signaling the economy is on track for steady growth this quarter, according to a survey from the Institute for Supply Management on Monday.

Key Takeaways

The results from the Tempe, Arizona-based group extend the solid start to the year for services that account for about 90 percent of the economy and span industries such as retail, utilities, health care, and construction. The February index compares with a 57 average for all of 2017.

While the services employment index suffered its biggest one-month drop since 2014, the gauge is still in line with its average for last year. In addition, growth in orders and backlogs signals a solid pipeline of business, supported by a tight job market and elevated confidence.

A separate ISM survey last week showed manufacturing grew in February at the fastest pace since 2004. At the same time, President Donald Trump's plan to impose tariffs on imported steel and aluminum has added a headwind to the outlook. His move risks sparking a trade war that could lift inflation, hurt business sentiment and weigh on economic growth.

Comments from respondents highlighted by ISM pointed to higher lumber costs and labor shortages in construction; stronger business momentum in retail; and declining spending across the federal government.

Official's View

The report signals “continued strength,” Anthony Nieves, chairman of the ISM non-manufacturing survey, said on a conference call with reporters. While the employment gauge “couldn't withstand” the high growth of the prior month due to the tight labor market, hiring is “still decent.” In addition, higher oil prices are starting to creep into service industries, though it's nothing to be alarmed about, he said.

Other Details

• Sixteen of 18 service industries reported growth, led by education services, transportation and warehousing, utilities and real estate; contractions reported in arts, entertainment and recreation, and accommodation and food services
• Index of supplier deliveries unchanged at 55.5
• Gauge of prices paid decreased to 61 from 61.9
• Measure of order backlogs rose 5.5 points to 56, biggest one- month gain since 2013; export orders measure increased to 59.5 from 58
• Official ISM data on main non-manufacturing index begin in 2008, though Bloomberg has calculated the index for previous years based on the sub-indexes

--With assistance from Alexandre Tanzi

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net.

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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