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Ahead of the Bell: US Services Index

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March 5, 2014 06:17 AM EST | AP


WASHINGTON (AP) — The Institute for Supply Management reports on growth at U.S. services firms in January. The ISM will release its services index at 10 a.m. Eastern Wednesday.

SLIGHT DECLINE: Economists forecast that the index fell to 53.2 in February, according to a survey by FactSet. That would be a decline from 54 in the previous month. Any reading above 50 indicates growth. The ISM is a trade group of purchasing managers.

SLOW BUT STEADY: Service companies have yet to experience breakout growth. The index had drifted downward after peaking at 57.9 in August, suggesting that any gains will continue to be modest. It has averaged 54.6 over the past 12 months.

Winter storms and freezing temperatures have slowed the economy in recent months. But one pleasant surprise from the January ISM survey was that the measure for hiring rose 0.8 points to 56.4, the highest reading since November 2010.

The service survey covers businesses that employ 90 percent of the workforce, including retail, construction, health care and financial services firms.

CONSUMER SPENDING: The service survey usually tracks with consumer spending, but that measure has recently become mixed due to higher home heating bills.

Spending rose 0.4 percent in January after a 0.1 percent gain in December, the Commerce Department said this figure. Much of that increase came from spending on home heating rising at its fastest pace since October 2001.

SEARCHING FOR MOMENTUM: Many recent economic indicators have disappointed. The government said the economy grew at a 2.4 percent annual rate in the October-December quarter, down sharply from an initial estimate of a 3.2 percent rate.

But U.S. manufacturing has started to recover from a winter that delayed shipments of raw materials and caused some assembly lines to stop. The ISM said in a separate report that its manufacturing index rose to 53.2 in February from 51.3 in January. The increase only partly reversed a five-point drop in January from December.

The ISM's measure of production — part of its manufacturing index— fell to its lowest level in nearly five years, likely the byproduct of the snowstorms. But the part of the index measuring orders increased, a sign that output will recover in the coming months.

Hiring has also been curtailed in recent months. The Labor Department will report Friday on how many jobs were added in February, with the consensus from economists being 145,000. That would be a modest improvement from gains of 113,000 and 74,000 in the previous two months. But it remains below the monthly job creation average of the past two years of more than 180,000.