By Xavier Fontdegloria
Business activity in the U.S. private sector held up at high expansion levels in February spurred by accelerating service sector activity and sustained robust growth of manufacturing output, signaling that the economic recovery remained solid through to the middle of the first quarter.
The flash reading for the U.S. Composite Output Index was 58.8 in February, marginally up from 58.7 in January, preliminary data from IHS Markit showed Friday. The reading marks the fastest growth for almost six years, IHS Markit said.
The indicator is based on data from the firm's PMI surveys for manufacturing and services sectors. In February, both the manufacturing and services sector remained in expansion territory, with the rate of expansion of the services sector accelerating compared with that of the previous month and the manufacturing sector easing somewhat, data showed.
"The data add to signs that the economy is enjoying a strong opening quarter to 2021, buoyed by additional stimulus and the partial reopening of the economy as virus related restrictions were eased on average across the country," said Chris Williamson, chief business economist at IHS Markit.
The growth in output occurred despite headwinds of Covid-19, extreme weather and record supply chain delays, he said.
IHS Markit's flash U.S. Services Business Activity Index came in at 58.9 in February, up from 58.3 in January and posting the fastest growth since March 2015. Economists polled by The Wall Street Journal expected the indicator to come in at 58.0.
Service providers often reported higher activity as virus-related restrictions were partially eased and inflows of new business picked up, notably among domestic customers, the report said.
As for the manufacturing sector, factory activity remained strong and the PMI held well above the 50-point break-even level.
IHS Markit Manufacturing PMI stood at 58.5 in February, down from 59.2 in January. Economists expected the U.S. Manufacturing PMI flash reading to remain broadly stable at 59.0.
While manufacturing output growth moderated during the month, it remained among the highest seen over the past decade thanks to a further marked increase in new orders and exports. The slower growth was often blamed on extreme weather and existing widespread supply shortages, IHS Markit said.
Input costs across manufacturing and services soared as demand outstripped supply, rising at by far the steepest rate since comparable data were first available in 2009. As a result, firms raised their selling prices at the sharpest rate on record, with respondents stating the increase was due to the partial pass-through of greater costs to clients, the report said.
Despite the increase in activity, employment growth remained relatively muted, particularly among service providers reluctant to expand workforce numbers amid efforts to cut costs and uncertainty about the near-term outlook due to the pandemic.
"Business sentiment remains buoyant, boosted by hopes of further stimulus and the vaccine roll out, but it's disappointing to see this not yet translate into stronger jobs growth," Mr. Williamson said.
Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com
(END) Dow Jones Newswires
02-19-21 1023ET
