U.S. services firms still growing at healthy clip

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U.S. services firms grew more slowly in February compared with the previous month, but still expanded at a healthy clip.

The Institute for Supply Management said Monday that its services index slipped to 59.5, from 59.9 in January. The January reading was the highest since 2005. Any reading above 50 signals expansion.

A sharp drop in a gauge of employment, suggesting that companies are hiring workers at a much slower pace, pushed the index lower. The employment index fell to 55 from 61.6.

Despite the small decline, the overall index points to an economy growing at a healthy pace. Consumers are increasingly confident and ramped up their spending in the final three months of last year, though they pulled back a bit in January. Solid job gains have pushed the unemployment rate to 4.1 percent, a 17-year low.

"The index has been overstating the trend in growth recently, but … the data continue to suggest strengthening," Jim O'Sullivan, chief economist at High Frequency Economics, said.

The services index measures sales, hiring and other activity among companies in a range of industries, including finance, construction, retail, health care and hotels.

A measure of sales rose to 62.8, the highest in a year. A measure of new orders increased, a sign that growth would likely continue.

Companies said that steel and aluminum prices were already rising last month, before the Trump administration said it would oppose tariffs on imports of both goods. Costs for lumber, transportation, gasoline, and chemicals also rose.

Anthony Nieves, chair of the ISM's services index committee, said trucking companies are facing shortages of both workers and rigs, which has created transportation bottlenecks. That has slowed down shipments of raw materials and raised transportation costs.

"I think we're going to see some inflation, just not very sharp," Nieves said.

The ISM surveys about 325 companies each month. Last week its separate survey of manufacturing firms also found a healthy level of expansion.

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