U.S. Services Sector Activity Rises Near Two-Year High, ISM Survey Shows

The pace of growth picked up in January for the services side of the U.S. economy, which accounts for around 67 percent of the country’s economic output.

The Institute for Supply Management said Wednesday that its services sector purchase managers index rose to 58.7 percent from an upwardly revised 57.7 percent in the prior month. That is the best score in two years, showing that service sector economic activity is above the pre-pandemic level

Economists had forecast a slight decline to 56.8.

The index is constructed from surveys taken of leading business executives. Readings above 50 percent indicate that businesses are expanding. Scores above 55 percent signal broad economic strength.

“Respondents’ comments are more optimistic about business conditions and the economy,” said Anthony Nieves, chairman of the survey.

The ISM’s survey of manufacturing executives released Monday showed similar strength.

Signs that the economy is rebounding at a better than expected pace could complicate negotiations over relief legislation in Washington, D.C. President Joe Biden has proposed a $1.9 trillion package but Republicans have countered with a much smaller bill they say is focused on those hit hardest by the pandemic. Some Democrats also worry that the Biden proposal calls for too much deficit spending.

Fourteen of ISM’s eighteen economic subsectors grew in January, lead by real estate and construction.  The contracting subsectors were: Arts, Entertainment & Recreation; Educational Services; Retail Trade; and Utilities.

New orders moved up 3.2 points to 61.8 percent. The employment component jumped 6.5 points to 55.2 percent—the best reading since before the pandemic struck.  That’s a sign that employers are hiring new workers as restrictions are lifted and the vaccine is rolled out.

“Business outlook for 2021 looks better. Companies are optimistic that conditions will start improving by the end of the second quarter,” a retail executive said.

The orders for export component sank, reflecting the weakness of economies around the globe as the second wave of lockdowns were imposed around the country.