The US service sector saw activity slow in February as supply constraints and a drop in new orders took their toll, an industry survey said on Wednesday.

The Institute for Supply Management (ISM) said its service sector index was at 55.3 percent last month, below both analysts' expectations and the 58.7 percent level seen the month before. Any figure above 50 indicates growth.

"There was a pullback in the rate of growth in the services sector in February," the survey's chair Anthony Nieves said.

"Respondents are mostly optimistic about business recovery and the economy. Production-capacity constraints, material shortages and challenges in logistics and human resources are impacting the supply chain."

A 9.9 point drop in new orders to 51.9 percent hurt the index's overall reading, as did a three-point jump in supplier deliveries, indicating a slowdown in logistics.

The US service sector's recovery from the Covid-19 pandemic stumbled in February
The US service sector's recovery from the Covid-19 pandemic stumbled in February AFP / Patrick T. FALLON

The services sector has been particularly hard-hit by mass layoffs caused by businesses restrictions to stop Covid-19 from spreading in the United States, and employment in February dropped two-and-a-half points to 52.7 percent.

However almost all 18 industries surveyed reported growth in February, with only real estate, rental and leasing firms reporting contraction, ISM said.

"The declining COVID-19 cases in the four states we operate in, combined with the increased vaccination rates, should bode well for our increased business activity moving into the second quarter of 2021," a company in the arts, entertainment and recreation industry told the survey.

Despite the February undershoot, the indicator remains above the 50-percent level indicating expansion, and Oren Klachkin of Oxford Economics predicated the service sector was set for a rebound as Covid-19 vaccines become widespread.

"Looking ahead, better health conditions will allow deeply disrupted services to reopen and economic activity to fully normalize," he said.