US services ISM grows more quickly than expected in February

Service sector activity in the US bounced back more strongly than expected last month amid a surge in new orders, according to the results of a widely-followed survey.

The Institute for Supply Management's Purchasing Managers' Index rose from a reading of 56.7 for January to 59.7 in February, exceeding consensus forecasts for a reading of 57.2.

A sub-index linked to firms' new orders registered the biggest improvement, jumping from a reading of 57.7 to 65.2, alongside big increases in sub-indices linked to order backlogs and for new export orders.

Prices pressures on the other hand weakened, with a sub-index tied to the prices paid by firms weakening from a print of 59.4 to 54.4, while another measuring employment levels retreated from 57.8 to 55.2.

Presciently, before Tuesday's report, Ian Shepherdson, Pantheon Macroeconomics's chief economist, had cautioned that: "the ISM non-manufacturing index tends to track the rate of growth of core retail sales, and the latest official sales data, for December, were horrible. On the face of it [...] the numbers appear to point to a sharp drop in the February ISM non-manufacturing, index, due today. But we don't believe the official sales data."

Nevertheless, in the same research report sent to clients, Sphepherdson added: "To be clear, we are also sticking firmly to our view that the rate of growth of consumers' spending is slowing, as the kicks from the tax cuts and the drop in gas prices in Q4 fade. But spending is not rolling over; it's just reverting to a sustainable pace, in line with real after-tax income growth. Transitions can appear painful for a time, but we can see no reason at all to expect a sustained near-term slowing in consumption."

-- More to follow --