The numbers: A barometer of business conditions at service-style companies such as hotels and hospitals held steady at a robust 55.1% in February, showing the U.S. economy is still in expansion mode.
“Sales activity is generally strong despite economic headwinds,” a senior restaurant executive told the Institute for Supply Management, publisher of the report.
Numbers above 50% are a positive sign. The closely followed ISM reports are the first major indicators of each month to offer clues on how well the economy is performing.
Economists polled by The Wall Street Journal had expected the index to drop to 54% from 55.2% in January.
Key details: The snapshot of the economy provided by the service-sector index has held up better than asimilar ISM survey of manufacturers that showed weaker business conditions.
Service companies make up the bulk of all U.S. businesses, however, and employ the vast majority of Americans.
The biggest negative: High inflation was still a sore spot. “Prices are still growing strongly,” said Anthony Nieves, chairman of the survey.
Survey highlights:
- The production gauge fell 4.1 points to 56.3%.
- The new-orders index increased 2.2 points to 62.6% — the highest level in 13 months.
- The employment barometer rose 4 points to a 14-month high of 54%.
- The prices-paid index, a measure of inflation, slipped 2.2 points to 65.6%.
- Yet companies said prices are still rising too fast, putting pressure on profits and forcing them to either cut costs or avoid new expenses.
“Most industries are being pinched by inflation and more expensive labor markets,’ an information-industry executive told ISM.
Big picture: The large service side of the economy indicates the U.S. is still on solid footing.
Yet the Federal Reserve plans to raise interest rates even higher to squash inflation, putting the economy at risk of recession.
What’s become both a source of strength and angst is the tightest labor market in decades.
Feeling secure in their jobs, Americans continue to spend enough to keep the economy out of recession. But rising wages also threaten to keep inflation high and force the Fed to raise rates even more.
Looking ahead: “The U.S. service sector economy continued to defy Fed attempts to slow down the sector through higher interest rates,” said chief economist Eugenio Aleman at Raymond James. The rise in the employment index also adds “to evidence that the US labor market is still strong.”
Market reaction: The Dow Jones Industrial Average DJIA, +0.44% and S&P 500 SPX, +0.83% rose in Friday trades.