February PMI Composite final print rises sharply

February PMI data indicated the fastest expansion of
business activity across the U.S. service sector since July 2014.
The upturn in output was supported by a marked rise in new
orders following stronger client demand. However, despite
further pressure on capacity, service providers registered only
a fractional rise in employment. Meanwhile, concerns regarding
the longevity of the pandemic led to a moderation in business
confidence.

At the same time, cost pressures remained elevated, with the
rate of input cost inflation accelerating to the fastest on record
(since October 2009). In response, firms raised their selling
prices at the second-quickest rate since data collection began
over 11 years ago.

The seasonally adjusted final IHS Markit US Services PMI
Business Activity Index registered 59.8 in February, up from
58.3 in January and above the earlier 'flash' figure of 58.9.
The expansion in output was the sharpest in over six-and-ahalf
years. The upturn was reportedly linked to stronger client
demand and a further rise in new business.

The increase in new sales also accelerated in February. New
order inflows expanded at the steepest pace since April 2018.
Anecdotal evidence suggested the sharp upturn was due to
stronger client demand and greater customer confidence
following the start of the vaccine roll-out.

In contrast, service providers registered a renewed contraction
in new export orders, albeit only fractional overall. Firms stated
that ongoing COVID-19 restrictions and limits on travel in key
export markets weighed on foreign client demand.

Input costs rose further in February, amid hikes in supplier

charges and wage bills. Some service providers also noted that
higher PPE prices pushed up cost burdens. The rate of cost
inflation quickened to the fastest since data collection began in
October 2009.

In response, service sector firms sought to pass on higher cost
burdens to clients. The rate of charge inflation was the secondfastest
on record.

At the same time, employment continued to rise in February,
albeit only fractionally. The rate of job creation eased to the
slowest in the current eight-month sequence of growth.
Due to little-changed staffing levels, backlogs of work were
accumulated at the sharpest pace for five months. Greater
levels of outstanding business were often linked to a further rise
in new orders and pressure on capacity.

Service providers signalled upbeat expectations regarding the
outlook for output over the coming year in February. Optimism
was commonly attributed to hopes of a successful vaccine
roll-out and stronger client demand. That said, the degree
of confidence moderated from that seen in January, amid
concerns regarding the duration of the pandemic.