March 4, 2020 / 3:06 PM / in a month

U.S. service sector races to one-year high in February

WASHINGTON (Reuters) - U.S. services sector activity accelerated to a one-year high in February, suggesting underlying strength in the economy despite the coronavirus outbreak, which has triggered financial market fears of a recession and led to an emergency interest rate cut from the Federal Reserve.

The Institute for Supply Management (ISM) said on Wednesday its non-manufacturing activity index increased to a reading of 57.3 last month, the highest level since February 2019, from 55.5 in January.

A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index falling to a reading of 54.9 in February.

The report came a day after the Fed slashed its benchmark overnight interest rate by a half percentage point to a target range of 1.00% to 1.25%, in the U.S. central bank’s first emergency rate cut since 2008 at the height of the financial crisis. Fed Chair Jerome Powell said “the coronavirus poses evolving risks to economic activity.”

The fast-spreading coronavirus has killed more than 3,000 people and sickened at least 90,000, mostly in China. In the United States, nine people have died from the illness associated with the virus and the number of infections exceeded 100.

Investors fear the coronavirus epidemic could derail the longest U.S. economic expansion in history, now in its 11th year, through disruptions to supply chains and exports. The hit to the services sector is expected to come mostly through the transportation and tourism industries.

The ISM reported on Monday that the manufacturing sector barely grew in February, with several industries saying the flu-like virus was impacting their businesses.

So far, however, the vast services sector appears to be weathering the coronavirus storm. The ISM survey’s measure of new orders for the services industry jumped to a reading of 63.1 in February from 56.2 in January. Order backlogs rebounded last month after contracting in January.

The survey’s index for services industry employment increased to a reading of 55.6 in February from 53.1 in January. This bolsters economists’ expectations for solid job growth in February when the government publishes its closely watched employment report on Friday.

Services industries also reported strong growth in export orders in February.

Reporting By Lucia Mutikani

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