US services firms grow at faster pace in February

AP Economics Writer

WASHINGTON (AP) — U.S. services firms’ activity rose at a slightly faster rate in February, powered by hotels, restaurants and wholesalers.

The Institute for Supply Management said Wednesday that its services index rose to 56.9 in February, up from January’s reading of 56.7. Any reading over 50 indicates expansion.

The survey suggests further growth in employment and imports, as a strong hiring streak over the past year has bolstered consumer spending.

“The bottom line is that the US economy remains in good health,” said Paul Dales, senior U.S. economist at Capital Economics.

The ISM is a trade group of purchasing managers. Its survey of services firms covers businesses that employ 90 percent of the American workforce, including retail, construction, health care and financial services companies.

Fourteen sectors reported growth in February, while four said activity lessened. In addition to hotels, restaurants and wholesalers, the sectors reporting growth include real estate, utilities, agriculture and financial sectors. Activity dropped for mining, construction and arts and entertainment.

The decline in oil prices has hurt business for firms involved in drilling and construction.

“Business conditions are seeing less money being spent on capital projects by the major oil companies,” one construction firm said in the survey.

Yet retailers countered that cheaper gasoline has boosted sales, helping to expand an economy where nearly 70 percent of all activity comes from consumer spending.

The ISM survey indicated that many companies faced pressures because of the backlog caused by the West Coast port labor dispute, a contract disagreement that was largely resolved last week.

“It will transpose into better margins by saving money and not having to deal with the issues of re-routing and airline freight,” said Tony Nieves, chair of the ISM’s non-manufacturing survey committee.

The economy grew at an annual rate of 2.2 percent in the October-December quarter after climbing at a strong 5 percent rate in the summer. Even though overall growth slowed at the close of 2014, hiring has enjoyed a hot streak.

Employers added roughly 1 million jobs between November and January, hiring at levels that economists say should support growth at an annual rate between 2.5 percent and 3 percent. Economists surveyed by the data firm FactSet expect the employment report being released Friday to show job gains of 240,000 in February.

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