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US service sector recovery accelerates in January

·1-min read
Business shutdowns to stop Covid-19 have wrought havoc on the US service sector, but vaccines against the virus and government spending could aid its recovery

The struggling US service sector saw its recovery from the pandemic-induced business shutdowns accelerate in January, according to a survey released on Wednesday.

The Institute for Supply Management's (ISM) services index rose to 58.7 percent, more than expected and its highest level since February 2019, reaching eight straight months of growth after contracting when the pandemic began last year.

"Respondents' comments are more optimistic about business conditions and the economy," the survey's chair Anthony Nieves said, but "various local- and state-level Covid-19 restrictions continue to negatively impact companies and industries."

Workers in the sector were laid off in droves as states imposed business restrictions to stop the transmission of Covid-19, but in January employment crossed the 50-percent threshold indicating growth with a reading of 55.2 percent.

New orders rose 3.2 percentage points to 61.8 percent, helping the overall index's gain.

However there were signs of weakening in the data, with business activity dropping slightly to 59.9 percent, prices posting a very small decline to hit 64.2 percent and new export orders losing 10.3 points to return to contraction at 47 percent.

The supplier deliveries index indicated speedier deliveries after Covid-19 constraints snarled supply chains in recent months.

"The stage is set for a strong rebound in the services sector heading into the summer," Oren Klachkin of Oxford Economics said, saying Covid-19 vaccines and President Joe Biden's government spending plan could help industries recover further.

"Improving health dynamics will allow deeply impacted services sector businesses to gradually reopen, accelerating the recovery that will also receive a booster shot from stimulus provided by the American Rescue Plan," Biden's $1.9 trillion economic rescue package.