The services side of the U.S. economy continued to expand in February, indicating that the reacceleration seen in January was not a one-off, seasonal blip.
The Institute for Supply Management said its purchasing managers index for the services sector came in at 55.1 for the month, down just a tick from the 55.2 reading.
Economists had forecast the index would fall further, to 54.5.
The February reading from ISM has been talked about as a crucial early test for the economy’s response to Fed policy. After falling below 50 in December—the threshold dividing growth from contraction—the index climbed back into growth in January. Many other measures of the economy, especially the labor market and consumer spending, also showed strength on January. Market watchers were paying close attention to whether the January strength would turn out to be a fluke—possibly due to unseasonably mild weather in much of the country—or the start of a new trend.
Federal Reserve chairman Jerome Powell has frequently said he is focused on the services sector when it comes to inflation. In particular, he has said he needs to see pricing pressure alleviated in the non-housing core services measures of inflation.
The prices component of the ISM index showed costs for services continued to rise, albeit at a slightly slower pace than in January. The index of new orders climbed 2.2 points to 62.6 and the inventories index rose as well. This suggests strong demand for services.
The employment index jumped four points to 54, showing payrolls rose in February. That will heighten worries that wage pressures will continue to push prices up.
The measure of general business activity slowed to 56.3 from 60.4 but remained high enough to indicate on going economic growth.
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