Service firms said to grow as business activity drops
WASHINGTON — Services companies grew at a faster pace in February than the previous month, an indication that the economy was still expanding immediately after the first cases of the coronavirus were reported in the U.S.
The Institute for Supply Management said Wednesday that its service-sector index rose to 57.3 from 55.5 in January. Any reading above 50 signals an expansion. The index covers retail, health care, hotels and restaurants, and professional services, among other sectors.
Services companies added jobs at a faster pace last month than in January while business activity declined, according the survey. Strong consumer spending, a healthy job market and decent pay gains are driving a healthy service sector and broader economy, but businesses have been cutting profit and sales expectations as the coronavirus outbreak spreads.
“Most respondents are concerned about the coronavirus and its supply chain impact,” said Anthony Nieves, chairman of the institute’s Non-Manufacturing Business Survey Committee. “They also continue to have difficulty with labor resources. They do remain positive about business conditions and the overall economy.”
Thirteen out of 16 industries reported sales growth in February, including accommodation and food services; rental and leasing; and transportation and warehousing.
Nearly 40% reported that orders were higher in February, the most since June 2018. Only 8% reported a decline, the smallest share since April 2018.
Hotels and other travel-related businesses could be hit hard in the coming months as companies cancel business trips and other nonessential travel because of the virus outbreak.
“People are definitely curtailing travel, especially abroad,” Nieves said. “Hotels will definitely feel it” if the situation worsens in the U.S., he said. He also stressed that February’s numbers were “great.”
“Unless something derails this, I expect continued growth without interruption,” he said.
At the same time, business activity at health care providers is likely to increase amid industry efforts to battle the virus and ramp up production of medical supplies. Construction and real estate firms, meanwhile, are staying busy as home sales heat up.
“Even in spite of this pandemic threat, they’re still remaining optimistic about business conditions and the overall economy,” Nieves said on a call with reporters. “The only thing that derails this growth in this sector would be something geopolitical or catastrophic. Well, we are on the fringe of something that could develop or evolve into being catastrophic if it spreads beyond what we have right now.”
A separate survey this week of manufacturers by the institute showed that American factories expanded in February for the second straight month, despite disruptions caused by the coronavirus outbreak.
While the manufacturing-supplier deliveries gauge jumped by the most since June 2018, indicating longer lead times, the same measure for services ticked only slightly higher. Instead, the jump in orders, which was the largest in more than two years, played a bigger role in boosting the institute’s nonmanufacturing index in February.
Information for this story was contributed by Matt Ott of The Associated Press and by Vince Golle, Chris Middleton and Reade Pickert of Bloomberg News.