US Service Sector Expands in February; Price Growth Accelerates

• U.S. services sector growth unexpectedly picked up in February, and prices for inputs increased, which, combined with a recent surge in the cost of raw materials at factories, suggested that inflation could heat up in the months ahead.
• Rising price pressures could be worsened by a trade war triggered by President Donald Trump's new 25% tariffs on imports from Mexico and Canada, which took effect on Tuesday, March 4, along with a doubling of duties on Chinese goods to 20%.
• The Institute for Supply Management (ISM) said on Wednesday, March 5, that its non-manufacturing purchasing managers index (PMI) climbed to 53.5 last month from 52.8 in January. Economists polled by Reuters had forecast the services PMI dipping to 52.6.
• A PMI reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of the economy. The ISM associates a PMI reading above 49 over time with expansion in the overall economy.
• The PMI pointed to resilience in domestic demand but was at odds with so-called hard data, including consumer spending and homebuilding, that have suggested a sharp slowdown in gross domestic product this quarter.
• With the goods trade deficit deteriorating sharply in January, largely blamed on the front-loading of imports ahead of tariffs, the Atlanta Fed is currently forecasting GDP contracting at a 2.8% annualized rate this quarter. The economy grew at a 2.3% pace in the fourth quarter.
• The ISM survey's new orders measure rose to 52.2 last month from 51.3 in January. That helped to lift its gauge of prices paid for services inputs to 62.6 from 60.4 in January. The ISM reported on Monday that its measure of prices paid by factories jumped to nearly a three-year high in February.

(Sources: Reuters)