U.S. Service-Sector Activity Expanded to Highest Level in More Than a Year--Update
U.S. service providers posted their highest level of activity in more than a year in February, the latest sign the economy is gathering steam amid Americans' rising optimism.
The Institute for Supply Management said Friday its index of nonmanufacturing activity rose to 57.6 in February, up 1.1 points from a month earlier and the highest since October 2015. A reading above 50 indicates rising activity, as measured by factors such as sales, production and hiring -- each of which showed signs of a pickup.
Economists surveyed by The Wall Street Journal had forecast a February reading of 56.5.
Industries that provide services -- including work done by doctors, accountants, barbers and miners -- account for roughly 80% of the U.S. economy. Manufacturers also saw a big increase in activity last month, the ISM said earlier this week. Together the reports suggest the economy in early 2017 is expanding faster than the 2% pace it has averaged through the current economic expansion.
Based on historical trends, February's service-sector activity corresponds with roughly 3.4% annual growth in gross domestic product, said Anthony Nieves, who heads the nonmanufacturing survey.
The companies who responded "across the board just have a positive outlook," Mr. Nieves said. Among the factors boosting business optimism: President Donald Trump's stated plans to reduce regulations and boost infrastructure spending, hopes for looser lending standards in the financial sector and higher consumer spending.
Paul Ashworth, chief U.S. economist at Capital Economics, said the latest data could nudge the Federal Reserve closer to raising short-term interest rates at its policy meeting later this month.
"The surge in the ISM nonmanufacturing index...only adds more support to the now-consensus view that the Fed will hike its policy rate again at the upcoming FOMC meeting," Mr. Ashworth said in a note to clients, referring to the Federal Open Market Committee, the Fed's policy-making arm.
Still, the economy is hardly booming, and many economists doubt February's economic activity will be sustained. Mr. Nieves cautioned that Mr. Trump's plans might not materialize. Many private-sector economists don't expect growth this year to climb far above 2%. Projections for annualized growth in the first quarter are roughly 1% to 2%.
Friday's report showed that a measure of service-industry sales, or new orders, rose quickly in February, hitting a reading of 61.2 compared with 58.6 a month earlier. A measure of production -- or how many services companies provided -- grew 3.3 points to 63.6. A measure of hiring climbed half a point to 55.2.
Write to Josh Mitchell at joshua.mitchell@wsj.com
