US services sector slows in February, first decline since 2013

Business activity in US services sector in February has contracted for the first time for since 2013, according to 'flash' Purchasing Managers’ Index data from Markit, which feared worse was to come.

The US services PMI for February fell to 49.8 from January's 53.2, with the consensus forecast having actually pointed to an increase to 53.5.

New business growth slowed for the third month running, with snowfall in the east coast adding to disruption and leading to the weakest rise in new work for 13 months.

Markit's composite PMI slumped to 50.1 from the prev 53.2, apart from October 2013 the worst since the recession, as a slight rise in manufacturing production was offset by the service slowdown.

Uncertainty about the economic outlook was likely to have weighed on business activity and combined with the snow effect to end a 27-month period of sustained growth for the services sector, Markit suggested.

The sector's slowdown raised the significant risk that the US economy would fall into contraction in the first quarter, said chief economist Chris Williamson.

"The flash PMI for February shows business activity stagnating as growth slowed for a third successive month. Slumping business confidence and an increased downturn in order book backlogs suggest there’s worse to come.

On the composite reading, he added: “With the exception of the government shutdown in October 2013, the February reading was the worse since the recession. Business activity in services fell for the first time since the shutdown, accompanying a marked slowdown to near-stagnation in manufacturing."

Employment in the services sector offered a brighter note, rising at a solid pace consistent with a 200,000 non-farm payroll gain.

However, Williamson said the stalling in growth of business activity alongside the increase in hiring "points to a marked deterioration in labour productivity during the month, which in turn suggests that companies may start to cut back on hiring”.