Fleet Management

Economic Watch: Service Sector Continues Expanding

April 06, 2015

By Evan Lockridge

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Photo: Revisorweb via Wikimedia Commons
Photo: Revisorweb via Wikimedia Commons

Two reports released Monday show the nation’s service sector continues increasing, albeit at different rates.

A survey of purchasing and supply executives by the Institute for Supply Managements found economic activity in the non-manufacturing sector grew in March for the 62nd consecutive month, with the Non-Manufacturing Index registering 56.5%, 0.4 of a percentage point lower than the February reading and a three-month low.

A reading above 50% indicates the non-manufacturing sector economy is generally expanding, while below 50% indicates the non-manufacturing sector is generally contracting.

"The past relationship between the NMI and the overall economy indicates that the index for March corresponds to a 3.3% increase in real gross domestic product on an annualized basis,” said Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee.

The Non-Manufacturing Business Activity Index decreased to 57.5%, which is 1.9 percentage points lower than the February reading of 59.4%, still reflecting growth for the 68th consecutive month but at a slower rate, according to the group. The New Orders Index registered 57.8%, 1.1 percentage points higher than the reading of 56.7% registered in February.

According to the NMI, 14 out of the 18 non-manufacturing industries reported growth in March, with a majority of respondents’ comments reflecting stability and mostly positive attitudes about business conditions and the overall economy. Among them: real estate, rental and leasing, retail trade, professional and technical services and construction.

The four industries reporting contraction in March were mining, educational services, utilities, and "other services."

A separate report, from the financial information services provider Markit, shows in March the U.S. service sector continued to rebound after a slowdown at the turn of the year, with business activity, new work and employment levels all increasing at a faster pace. However, despite a strong upturn in service sector activity since February, the latest survey indicated that year-ahead business activity expectations were the lowest recorded for eight months.

At 59.2 in March, up from 57.1 in February, the seasonally adjusted final Markit U.S. Services Business Activity Index remained well above the neutral 50 threshold. The latest reading also signaled the fastest expansion of service sector output since August 2014.

“The latest survey highlights a strong underlying pace of U.S. economic growth moving into the second quarter of 2015," said Tim Moore, senior economist at Markit. "New business trends across the service sector have picked up especially sharply from the lows seen earlier in the year, and job hiring has strengthened as a result.

"However, service providers’ business confidence dipped in March and remained well below the peaks recorded in 2014, weighed down in part by the prospect of a Federal Reserve [interest] rate rise later this year. Meanwhile, subdued input price pressures were reported in March, although the overall rate of cost inflation has ticked up slightly from a recent five-year low.”

Service providers attributed sustained activity growth to improving new business inflows during March, according to Markit. The upturn in new work was the fastest since September 2014, with survey respondents commenting on successful marketing initiatives, new product launches and improving domestic economic conditions. Moreover, the latest expansion of new business volumes was much faster than January’s survey-record low.

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