U.S. service sector’s business activity continues to rebound in February, IHS PMI index rises to 56

U.S. service sector’s business activity continued to rebound in the month of February, with the pace of growth accelerating to the most rapid since July 2018. A surge in new business and a return to growth in new export orders underpinned the rise in output.

The seasonally adjusted final IHS Markit U.S. Services Business Activity Index rose to 56 from January’s 54.2 and was widely consistent with the flash figure of 56.2. According to panellists, increased client demand and favourable economic conditions mainly drove the upturn.

Meanwhile, service providers recorded a more rapid rise in new business in February. Stronger client demand and the opening of new facilities were commonly mentioned as contributing factors to the latest rise. The growth was strongest since last October and historically sharp. Companies also recorded a return to growth in new export orders after a two-month sequence of fall. Moreover, the rate of rise was the most rapid for nine months and well above the series average.

Consistent with a stronger rise in new business, companies were required to take on more staff in February in the midst of strains on capacity. The pace of job creation was the most rapid for five months and accelerated considerably from that seen in January. Meanwhile, backlogs of work rose for the second straight month and to the greatest degree since May 2018.

In the meantime, inflationary pressures rose in February, with service providers recording more rapid rises in both input prices and output charges. The solid rise in cost burdens was greatly attributed to increased raw material and fuel prices, tariffs and increased interest rates. The pace of input cost inflation accelerated from January’s 22-month low and was the most rapid since November 2018. Companies reportedly sought to pass greater cost burdens on to clients through increased output prices. The pace of charge inflation accelerated for the second straight month as more favourable demand conditions permitted firms to hike prices.

Service sector companies continued to be positive in February. However, the degree of sentiment was softer than that in January. Although service providers commented on the strength of client demand, others underlined worries around the sustainability of new business growth.

At 18:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was sllightly bullish at 69.8828 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex