Data show US economy on solid footing as virus fears mount

WASHINGTON: US services sector activity jumped to a one-year high in February, suggesting strength in the economy before a recent escalation of recession fears ignited by the coronavirus epidemic that prompted an emergency interest rate cut from the Federal Reserve.
The economy’s solid fundamentals were also underscored by other data on Wednesday showing private payrolls increased more than expected in February, in part as unseasonably mild weather bolstered hiring at construction sites and in the leisure and hospitality industry. A report from the Fed described the economy as growing at “a modest to moderate rate over the past several weeks,” but noted rising concerns over the coronavirus.
The US central bank on Tuesday slashed its benchmark overnight interest rate by a half percentage point to a target range of 1.00 per cent to 1.25 per cent, in the Fed’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.”
“Going into any potential coronavirus slowdown, the economy is in good shape,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania.
The Institute for Supply Management (ISM) said 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 US economic activity. Economists polled by Reuters had forecast the index falling to a reading of 54.9 in February.
The ISM said services industries remained “positive about business conditions and the overall economy,” but also noted that “most respondents are concerned about the coronavirus and its supply chain impact.”
The fast-spreading coronavirus has killed more than 3,000 people and sickened at least 90,000, mostly in China. In the United States, 10 people have died from the respiratory disease called COVID-19 caused by the virus and the number of infections exceeded 100, raising awareness of the disease among Americans starting the last week of February.
Investors fear the coronavirus epidemic could derail the longest US economic expansion in history, now in its 11th year, through disruptions to supply chains and exports. The damage to the services sector is expected to come mostly through the transportation and tourism industries. Economists expect the coronavirus to restrain economic growth in the first half of the year to around 1.0 per cent. The economy grew 2.3 per cent in 2019.
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 and labour market appear to be weathering the coronavirus storm.
Separately on Wednesday, the ADP National Employment Report showed private payrolls gained 183,000 jobs last month after rising by a downwardly revised 209,000 in January. Economists had forecast private payrolls increasing 170,000 in February following the previously reported 291,000 surge in January.
Labour market strength was reinforced by the ISM survey, which showed its measure of services industry employment increased to a reading of 55.6 in February from 53.1 in January.
The data and a near sweep for Joe Biden in the Super Tuesday Democratic primaries to choose a presidential candidate for the November 3 election boosted stocks on Wall Street. The dollar firmed against a basket of currencies. The yield on the benchmark 10-year government bond hovered below 1.0 per cent.
— Reuters