US services gauge falls to one-year low as orders soften

[WASHINGTON] Growth in the US services sector retreated in February to a 1-year low as orders softened along with business activity.

The Institute for Supply Management's gauge of services fell 3.4 points to 56.5, below even the most pessimistic estimate in a Bloomberg survey of economists, according to data released on Thursday (Mar 3). Readings above 50 signal expansion.

The group's index of new orders also showed the slowest growth in a year, while a measure of business activity - which parallels the ISM's gauge of factory production - fell to the lowest level since May 2020. Moreover, an index of employment contracted.

"Respondents continue to be impacted by supply chain disruptions, capacity constraints, inflation, logistical challenges and labour shortages," Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. "These conditions have affected the ability of panelists' businesses to meet demand, leading to a cooling in business activity and economic growth."

At the same time, the ISM figures stand in contrast to a separate report from IHS Markit on Thursday which showed services activity bounced back sharply in February from a month earlier. That data also included firmer growth in orders and employment.

The overall ISM measure has fallen 3 straight months and is down almost 12 points from a series peak in November, before a pickup in coronavirus infections stifled activity.

14 industries reported growth last month, led by construction and transportation and warehousing.

The group's gauge of services employment fell almost 4 points to 48.5, the weakest since August 2020, which may indicate a combination of lingering Omicron effects and firms' difficulty hiring and retaining workers.

The impact of tough hiring conditions helps explain longer lead times and higher backlogs during the month. The ISM's index of supplier delivery times rose to a 3-month high.

A measure of unfilled orders climbed 6.8 points in February, the largest one-month advance in 2 years. BLOOMBERG