U.S. services sector contraction slows in February
NEW YORK (Reuters) - The U.S. service industry shrank for a second month in February, though at a slower pace, according to a report on Wednesday that showed more improvement than expected but still painted a picture of weakness.
The Institute for Supply Management's non-manufacturing index came in at 49.3, above the record-low result of 44.6 in January but still slightly below the level of 50 that separates expansion from contraction.
The NMI has now been below 50 for two consecutive months, the first time it has been mired in such a slump since January 2002, when the economy was still feeling the effects of the last recession.
Economists polled by Reuters had expected the non-manufacturing index to come in at 47.0 for February.
U.S. stocks .DJI added to gains after the unexpectedly strong data while the dollar rose versus the yen. Government bonds, which usually benefit from weak economic news, turned lower.
The services index follows a similar report on Monday from the ISM that showed U.S. factory activity contracted in February, falling to its weakest in nearly five years.
"It reflects a bounce back from the very weak report from last month," Zach Pandel, economist at Lehman Brothers in New York, said of the ISM services report.
"It still suggests a moderate contraction in the service sector, bringing it closer to the (ISM) manufacturing series."
The newly introduced non-manufacturing index made its debut in the January report, but historical data exists based on its components.
On the headline NMI, February's rise was the biggest monthly increase in the index since August 1997, the month after ISM launched the services sector survey.
The ISM's business activity index showed expansion, coming in at 50.8, above January's 41.9. Prior to the introduction of the non-manufacturing index, the business activity index was seen as the headline number in the ISM services data series.
It was the biggest rebound in the business activity index since November 2001, the end of the last U.S. recession.
However, both services indexes saw their biggest monthly falls ever in January.
The service employment index rose to 46.9 in February from January's 43.9. The new orders gauge increased to 49.6 from 43.5. On inflation, the measure of prices paid eased to 67.9 in February from 70.7 in January.
The services sector accounts for about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.
(Additional Reporting by Richard Leong; Editing by James Dalgleish)
