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US service sector slows further in February – ISM survey

WASHINGTON, March 3 (Reuters) – A measure of U.S. service industry activity fell to its lowest level in a year in February and employment contracted, suggesting a slowdown in economic growth at the end of 2021 persisted beyond the disruption of the winter surge of COVID -19 cases.

The Institute for Supply Management said Thursday its non-manufacturing activity index fell to 56.5 last month, the lowest level since February 2021, from 59.9 in January.

The index’s third consecutive monthly decline came despite coronavirus cases, driven by the Omicron variant, which declined significantly from mid-January. A value above 50 indicates growth in the service sector, which accounts for more than two-thirds of US economic activity.

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Economists polled by Reuters had forecast the index to rise to 61. Most of the survey was likely conducted before Russia began its war against Ukraine last week, which sent prices soaring oil, wheat and other raw materials.

The economy slowed in December as Omicron raged across the country. The United States is reporting an average of 61,742 new COVID-19 infections per day, a fraction of more than 700,000 in mid-January, according to a Reuters analysis of official data.

The ISM measure of new orders received by service businesses fell to 56.1, also the lowest in 12 months, from 61.7 in January. Its service industry employment indicator fell to a year-and-a-half low of 48.5 from 52.3 in January. This is the index’s first contraction since June 2021.

The drop could be the result of labor shortages. There were nearly 10.9 million record job openings at the end of December. Wednesday’s ADP jobs report showed payrolls for small businesses fell in February. Weak employment in the service sector and small businesses poses a risk to February’s nonfarm payrolls.

According to a Reuters survey of economists, the government is expected to report on Friday that nonfarm payrolls rose by 400,000 jobs last month after rising by 467,000 in January.

A measure of order books at service businesses jumped to 64.2 from 57.4 in January, mirroring a similar change in the ISM manufacturing survey released on Tuesday.

While unfinished work indicated strong demand, it highlighted strained supply chains. The survey’s measure of supplier deliveries rose to 66.2 from 65.7 in January. A reading above 50% indicates slower deliveries.

As a result, services inflation accelerated. The ISM measure of prices paid by service industries rose from 82.3 to 83.1 in January. The Russian-Ukrainian conflict is expected to further fuel inflationary pressures.

Federal Reserve Chairman Jerome Powell told lawmakers on Wednesday he was “inclined to propose and support a 25 basis point rate hike” at the U.S. central bank’s monetary policy meeting this month. this, but that it would be “ready to act more aggressively” if inflation did not. decrease as quickly as expected. Read more

Economists expect seven rate hikes this year.

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Reporting by Lucia Mutikani Editing by Chizu Nomiyama

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