The purchasing managers' index (PMI) from IHS Markit for the U.S. services sector, which accounts for a much larger share of the overall economy than manufacturing, rose to 55.9 in February. That is the best headline reading since August, and surveyed managers attributed the improvement to more favorable demand conditions, the acquisition of new clients, and investment in new facilities. The level of outstanding business also increased in February, which contributed to the fastest gain in employment in six months as manufacturers attempted to reduce capacity pressures.
As for inflation, input prices rose at the fastest pace since June 2015, but average charges also increased as firms protected margins. Chris Williamson, chief business economist at IHS Markit, added that “The concern is that prices continue to rise as demand outstrips supply. Average prices charged for goods and services showed the largest monthly rise since September 2014, which is likely to feed through to higher consumer price inflation.” Similarly, the Institute for Supply Management’s (ISM’s) non-manufacturing index, also released this morning, slid to 59.5 in February. That is better than expected and the 97th consecutive month of net activity expansion. Measures of production and new orders improved last month, but a rising number of surveyed managers complained about inflation.
Sources: Econoday, IHS Markit, ISM, ZH, FRBSLPost author: Charles Couch