US services sector cools in February - ISM survey shows

WASHINGTON (Reuters) - U.S. services industry growth slowed a bit in February amid a decline in employment, but a measure of new orders increased to a six-month high, pointing to underlying strength in the sector.

The Institute for Supply Management (ISM) said on Tuesday that its non-manufacturing PMI slipped to 52.6 last month from 53.4 in January. A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the economy. Economists polled by Reuters had forecast the index little changed at 53.0.

The PMI was consistent with continued economic expansion, despite 525 basis points worth of interest rate hikes from the Federal Reserve since March 2022. Though financial markets expect the U.S. central bank to start cutting rates this year, the timing is uncertain because inflation remains high, with most of the price pressures coming from services such as housing and utilities as well as finance, healthcare and recreation.

A measure of new orders received by services businesses increased to 56.1 last month, the highest level since last August, from 55.0 in January. Export orders, however, slowed after surging in January. With orders rising, production accelerated, with a measure of business activity jumping to a five-month high of 57.2 from 55.8 in January.

Despite the rise in orders, the increase in services inflation slowed. A gauge of prices paid for inputs by businesses fell to 58.6 from an 11-month high of 64.0 in January. Supply improved, with the supplier deliveries measure falling to 48.9 after rebounding to 52.4 in January. A reading below 50 indicates faster deliveries.

Though new orders and production accelerated, there was no surge in hiring, with services sector employment shrinking. The survey's measure of services sector employment declined to 48.0 from 50.5 in January. Coming on the heels of a decline in factory employment in February, that would suggest a considerable slowdown in job growth.

The ISM services and manufacturing employment measures have not, however, been reliable gauges when trying to predict nonfarm payrolls employment. Nonetheless, the labor market is cooling, with a Conference Board survey last Tuesday showing consumers less upbeat about the jobs market.

The government is expected to report on Friday that nonfarm payrolls increased by 200,000 jobs in February after surging 353,000 in January, according to a Reuters survey of economists. The unemployment rate is forecast unchanged at 3.7%.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)