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U.S. ISM Non-Manufacturing Index Unexpectedly Rose to a 12-month High in February
The increase in February predominantly reflected a sizable increase in the "new orders" component. "Business activity" saw a modest increase in the month while "employment" and "supplier delivery" moderated to provide some offset.
The pace of growth in the US service sector accelerated in February 2013 as indicated by the ISM non-manufacturing index increasing to a 12-month high of 56.0 from the 55.2 level recorded in the previous month. The increase in February was in contrast to market expectations for a modest decline in the measure to 55.0.
The improvement in the headline index in February predominantly reflected a sharp increase in the growth of "new orders" with the sub-index jumping 3.8 points to 58.2 in the month. "Business activity" edged up by 0.5 points to 56.9, although this did little to retrace the 4.4 point decline seen in the previous month. The gauge of employment growth moderated slightly in February and was down 0.3 points, although this followed the sizable gains recorded in each of the previous two months that had moved the sub-index to its highest level since February 2006, and the 57.2 level remains historically elevated. Rounding out the index's main components, "supplier deliveries" declined to 51.5 from 52.5 in January, thereby indicating that suppliers' delivery times were not as slow as in the previous month (delivery times tend to become slower when there is increasing demand).
The upward surprise in the ISM non-manufacturing index moved the activity gauge even further above its long-run average of 53.9 and is suggestive of a solid rate of growth across the largest sector of the US economy. Add in the better than expected reading in the February ISM manufacturing index reported last week and the data point to a broad improvement in the pace of growth thus far in the first quarter of 2013. Indeed, February's 55.8 reading for the composite of the two measures represents the highest level in almost two years and is consistent with our expectation that real GDP growth will rebound in the first quarter of 2013 after taking the brief pause seen at the end of 2012.
Written by RBC Financial Group