Services sector contracts at a faster pace in February

The U.S. services sector, like its sister sector, manufacturing, continues to feel the impact of the U.S. and global slowdowns.

The U.S. services sector contracted at a faster pace in February, falling for a fifth straight month, to 41.0 from 42.9 in January, the Institute for Supply Management announced Wednesday. Readings below 50 indicate a contraction; above 50, an expansion.

What's more, the index's closely watched business activity component plummeted 4 points from January to 40.2 in February.

Economists, executives, and market analysts closely monitor the business activity component of the services index because the survey does not contain a composite index, unlike the ISM's manufacturing index.

Bearish sentiment continues

The services index, also known as the non-manufacturing index, surveys about 400 firms in 60 sectors. Respondents to the services survey said they were concerned about soft market conditions, the negative outlook for employment, and the overall state of the economy, the ISM said.

Economist surveyed by Bloomberg News had expected the ISM services index to decline to 41.0 in February.

Investors should monitor the ISM services index, due to the large role (70 to 75 percent of GDP) services play in the U.S. economy and trade, and due to the transfer of many manufacturing operations to lower-cost plants abroad and other changes in the economy.

Economic Analysis: The services index remains mired at recession levels. Further, given tepid consumer spending and the correlation between consumer spending gains and services output, the services index will rally only after monthly job losses begin to decline.

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