The Institute for Supply Management (ISM) reported today that its index measuring service sector activity rose to 53 in February from 50.5 in January. Any level above 50 indicates growth. This number means that growth in the service sector in the United States accelerated at its fastest pace in more than two years. This is definitely positive news, however jobs remained scarce.
Improvement in the service sector, which accounts for about 80 percent of US jobs, has been rather slow and bumpy. Continued tight credit and scarcity of jobs in the service sector continue to weigh on consumer sentiment and consumer spending. A rebound in the service economy will be crucial to the US economy enjoying a sustained recovery from the recession that began in December 2007.
Economists were pleased with the number particularly in light of the harsh winter weather in much of the country. However, they remain cautious because the number would indicate that the US economy is only growing at a 2 percent rate. This is disappointing to say the least after such a harsh and deep recession. Until strong hiring resumes, nervous consumers may still cut back on spending. If so, the decline in the service sector will resume.
The good news on the jobs front is that the ISM reported that its measure of employment improved to 48.6, the highest since April 2009 and approaching the 50 level where employers may begin hiring again. It was the 26th consecutive month of shrinking jobs. More good news came from outplacement firm Challenger, Gray & Christmas which said that companies announced about 42,000 layoffs in February – the lowest since June 2006.