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US services sector retreats from record heights in January

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Growth in the US service sector, a key driver of the world's largest economy, slowed in February as hiring activity weakened, according to an industry survey released Monday.

[WASHINGTON] Growth in the US service sector, a key driver of the world's largest economy, slowed in February as hiring activity weakened, according to an industry survey released Monday.

Despite the lower reading, growth was still near its fastest pace in a decade and beat analyst expectations, according to the Institute for Supply Management's monthly report.

ISM's Non-Manufacturing Index fell to 59.5 per cent last month, 0.4 percentage points below January's record pace, which was the highest level since the survey debuted in 2008.

But the result was better than the 58.8 per cent reading analysts expected. Anything above 50 per cent indicates growth and February saw the 97th straight month of expansion.

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Business activity jumped three points to 62.8 per cent and new orders rose 2.1 to 64.9 per cent.

But the employment index slumped 6.6 points, while prices increased, in part due to labour costs.

Anthony Nieves, chair of the ISM survey committee for the services sector, said hiring fell because the rate of growth was unsustainable, given the short supply of available workers.

"It couldn't stay at the current level, especially with this tight labour market," he told reporters in a conference call.

With the US unemployment rate currently at 4.1 per cent and expected to fall further, anecdotal reports indicate employers are struggling to fill open positions.

The services price index fell nine tenths of a point to 61 per cent, indicating that prices rose for the 24th straight month, albeit at a slower pace.

"We're seeing a possible creep in of inflation, nothing too sharp to be alarmed about at this point in time," Mr Nieves said.

"Most of this pricing is driven by what we're seeing in the price of oil," he added, noting also that labour costs also were mounting due to the labor shortage.

The Federal Reserve is widely expected to raise the benchmark interest rate later this month as part of the gradual bid to stay ahead of any inflation pressures, but officials in recent statements have tamped down fears that prices may be set to spike even as wages start to creep up.

Even so, markets remain nervous and have swooned in recent weeks on fears that inflation could pick up, resulting in faster rate increases, and many economists now expect four Fed hikes in 2018.

According to ISM, 16 of 18 services industries reported growth, including real estate, wholesale trade, financial services, health care, construction and mining.

Arts and entertainment and hospitality reported contraction.

A respondent in the construction industry said lumber costs were "starting to become a problem," as well as short supplies of labour, causing difficulties in long-term planning.

AFP